How Financial Advisors Decide When To Collaborate

Ed. Note: This article first appeared in Investor's Business Daily

Taking market share is how businesses grow. But a financial advisor should never take over just part of a client's portfolio from another advisor, warns Joe Clark, managing partner of the Financial Enhancement Group in Indianapolis.

The reason: It leaves the losing advisor angry and scared.

"They're thrashing about like a wounded wild animal," Clark said.

"It makes them very dangerous." And once two advisors are each running part of a portfolio, the loser will never miss an opportunity to critique everything you do.

Clark's solution? Collaborate with rivals. "There's a time to compete," Clark said. "But when I first encounter another advisor in business, I look for ways to collaborate."

Clark is not alone. "We see collaboration and cooperation quite a lot," said David Canter, executive vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. Canter's division works with financial advisors.

Independent and smaller-firm financial advisors are more prone to cooperate than advisors who work for large financial firms, says C.W. Copeland, a professor who teaches budding financial advisors at the American College.
Financial advisors who can collaborate do so for several reasons, says John Anderson, managing director, practice management solutions at SEI Advisor Network, which offers wealth management platforms to independent financial advisors.
One key reason for collaboration is that it can be mutually beneficial. For one thing, a younger advisor can help an older advisor avoid client defections.

"Older advisors need to reassure clients there's someone in the wings if the older advisor gets sick or retires," Anderson said.

Collaborators typically sign agreements, specifying that they will not poach clients from each other.

Collaboration can also morph into a business succession plan.

"Many older advisors are looking for someone to take over the business that they've built up, someone to buy them out down the road," Fidelity's Canter said.

Financial advisors also collaborate to make up for a lack of in-house expertise. In addition to teaching, the American College's Copeland heads a financial advisory firm in Atlanta.

For about two years he has collaborated with Felipe Barganier, president of a separate firm, GAB International.

Copeland, who specializes in investment management, brings clients to Barganier when they need insurance products that he himself can't provide as well, and vice versa.

"It makes sense for us to partner, so we can expand what we're each offering to our clients," Copeland said.

Barganier and Copeland have also repeatedly collaborated with additional advisors. Some are located far from Atlanta.

"We can expand our geography without having to physically be in those locations," Copeland said.

Some financial advisors collaborate with outsiders who provide products or services that the advisors don't want to provide.

That's the incentive for registered investment advisors.

As fiduciaries, they avoid potential conflicts of interest by shunning compensation in the form of commissions, which can tempt an advisor to put his own profit ahead of a client's best interests.

"We don't sell insurance products and we don't hold a brokerage license, because we don't want to be paid commissions," said Christopher Congema, referring to how he and his partners in fee-only Landmark Wealth Management conduct business.

When a client insists on buying something Landmark won't sell, such as an annuity, Landmark can refer them to an advisor or other financial firm that will oblige that client for that transaction.

"We may sit in on the meeting with the outside (financial professional) so we can give feedback to our client about what's being offered to them."

Collaboration and cooperation often involve meeting with colleagues to swap ideas or listen to third-party experts over lunch, in study groups, in conferences and in sessions convened by big financial firms.

"Mainly, advisors want to share ideas about best practices," said Fidelity's Canter.

Discussion topics range from fees to technology. Money managers are popular guest speakers.

One business-building best practice that he saw an advisor share with fellow advisors was the separation of business development responsibilities from client service responsibilities.

"It ensures that you have two separate groups of people in your firm, focused only on their own important tasks," Canter said.

Brian Cohen, one of Congema's partners at Landmark, says he and other advisors join together in using study groups to learn about alternative investments, including long-short mutual funds, REITs and gas-pipeline MLPS.

But cooperation has its limits.

Many advisors are reluctant to share certain types of information, such as hot investment ideas, compensation for key executives and their investment performance.

And even otherwise collegial advisors shy away from sharing ideas with someone who might compete for the very same clients, Copeland says.

For similar reasons, some advisors steer away from sharing marketing ideas.

For instance, Cohen says he and his partners have worked hard to improve their internet search engine optimization (SEO) skills.

Their ability to appear high in search-engine lists is a valuable way of attracting prospective new clients. And internet searches can turn even geographically distant advisors into direct competitors.

"SEO skills are things I'm not as quick to share with brethren advisors," Cohen said. "There are only so many clients."

Posted by: The Trust Advisor


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