TRENDS, TIPS & TRICKS
ON HOW TO MOVE
YOUR BOOK OF BUSINESS
for FINRA Registered & Licensed Representatives
(For Registered Eyes Only)
Updted Jan, 2010 from Aug, 1999
Members of The Money Foundation are Registered Representatives (“RR”) in production just like you. We are different however in the fact that we have chosen to share our professional knowledge as well as to contract together to write our own dream contract. As a collective think-tank for creative investment professionals and master minds of the financial world, what is key for us is that we all own our practices.
We understand that as a RR, one of your greatest assets is the time you have spent in obtaining market knowledge and client proprietary trust. These intangible yet real assets are the engine that drives your commissions, trails, and fees from your book of clients. In addition, and more importantly, these factors are directly reflected by the health of your clients’ portfolios and the success of their plans.
If done right, changing your broker/dealer (“B/D”) should enable you to provide your clients with better services and afford you the opportunity to build your practice with ease. Achieving our business goals is in the best interest of both us and our clients. With the right mindset, independent RRs can truly reap the full rewards of their hard work and study.
We recognize that making a switch is not a step to be taken lightly. Yet, if control of your own future is important to you, making a move could be the best move you’ve ever made.
This Money Foundation brochure was designed to help you with this process so that you are aware of potential issues that you could incur prior to moving your book.
Success is not an outcome, it’s a process…Success leaves clues!
We wanted our Ideal Contract to take us far beyond just earning a living. Our Dream Contract was designed to build equity and net worth for ourselves instead of the B/D’s home office. It’s the attainment of the professional dream for all of us.
Independence entails all the rights, worries, responsibilities, and opportunities that any entrepreneur enjoys.
We know it is a major move, yet the right network can help ease the transition and get you started on the right foot. Once you have broken free from the wire house chains, you’ll be free to realize your full potential as a professional and keep the fruits of your labors growing well into the future.
The Money Foundation asked over 600 RRs what their Dream Contract be, and how would it be used with their Dream B/D. From those answers, The Money Foundation established 108 points for evaluating all B/Ds and a time line to assist with a visualization of what a successful move would and should entail.
Where do you begin looking for the right B/D? Now is the time to dream of the possibilities. Before you can find a good B/D match, you first need to fully understand your own business vision.
We suggest you write a “professional self-examination” to evaluate your practice in conjunction with developing your business plan.
Take a good, hard look at the needs of your top clients. What do they want that you can not currently provide? Prioritize a list of the support elements you expect from a B/D.
Questions to ask yourself may include…
- What is my product mix?
- How could I change or expand my mix?
- Are Assets Under Management a major part of my practice?
- Are wrap fees and/or fee based services an area I’d like to build?
- How closely do I need to follow the market throughout the trading day?
- What are my research needs?
- Do I need help with investment planning or investment management?
- How could that assistance be most helpful?
After you take a critical look at your business and determine your needs, prepare a checklist of the prioritized services and features that you desire in a B/D. Remember, The Money Foundation, has established 108 such points; your list can be as long or as short as your practice demands.
Once you have detailed what you want for your career, you will be in a much better position to successfully imagine your dream, and begin the search for your ideal B/D, one that is able to deliver more than just promises.
After determining that the B/D is financially strong and meets compliance regulations, study the firm’s day-to-day capabilities. Refer back to the professional self-examination you completed earlier.
TIP: Compare your needs with the strengths and weaknesses of the B/D in question. This early comparison will help you quickly identify potential B/Ds or B/Ds not worth pursuing.
The breadth and depth of a B/D’s product availability is important. Yet, it is often not as important as the quality of the products offered. You should be sure to obtain a current product list that you can reference.
Questions you should ask may include:
- Do they have the products you currently offer your clients?
- Does the B/D have direct access to bonds and UITs? How are they acquired?
- What products have they offered in the past that they no longer sell?
TIP: Any multiple problems with past product decisions should be a red flag
- Do wholesalers of the package products provide local support?
- What research will become available to you and at what expense?
- If the B/D offers limited partnerships, how is the due diligence accomplished?
- Will you have access to professional portfolio managers or fee based accounts?
- Will the B/D allow you to perform signature guarantees in-house?
- Are state of the art cash management products offered with the option of having debit card or checking privileges?
- Do they offer discretionary accounts?
- Can you have your own RIA?
- Is there a money market fund linked to the Brokerage accounts?
- Does it sweep automatically and have check writing privileges?
- Will the B/D provide access to a Registered Investment Advisory Firm (RIA) for your fee based business?
TIP: Most full-service B/Ds have a long list of available products. Again…look at the quality as well as the quantity.
Technologies: Do they use technology effectively?
Technology plays a role in every aspect of our business as well as in the services that any B/D offers. The quality and dependability of the B/Ds technologies and procedures are critical to your ability to provide the level of service you want for your client. This is an area that many RRs take for granted… until something goes wrong.
You should evaluate a B/D’s technologies by examining the following:
Training – Any system is only as good as your knowledge of the process. That makes this an essential issue. What process is provided for training you and/or your staff?
Accessibility – How accessible are the people who can solve your problems? How are they organized?
Accountability – Is there an individual who is specifically responsible for your satisfaction?
Feedback – Are mechanisms in place that let you provide input regarding the quality of services?
Technology – Does the back office system allow the online retrieval of customer history, positions, and product availability? If so, can your personal computer access it, even from a client’s home?
Paperless Office – Does the firm use any sort of paperless management system. If not, do they plan on going paperless anytime in the near future?
TIP: The most cost efficient B/Ds will survive when others do not. Technology is the key to their survival, as well as your own.
Executions – How long does it take to execute orders for listed market orders? How many traders are located on the floor of each exchange and how many OTC traders are available?
Backup – What contingencies have been made and put in place should the main service location experience fire, power outage, or any other difficulties?
Disaster Plan – Ask for a copy of the compliance and procedure manuals. Does it appear complete and user friendly?
Account Transfers – Is the firm a member of the ACAT (Automatic Customer Account Transfer) system?
License Transfers – Is the firm able to execute a Temporary Agency Transfer “TAT” of your licenses? (see “Transferring Your License” section)
Commission systems – How often will commissions be paid to you? Firms can pay weekly, bi-weekly or monthly.
TIP: Evaluate the B/D’s financials… you do not want a firm in financial trouble holding your assets.
Paper Flow – Get copies of paperwork: including new account forms, order tickets, receipts, monthly statements, etc… Make certain that they are easy for you and your customers to read and understand.
Transition Assistance – Moving your book can be confusing. Will a specific person be assigned to help guide you through the critical first few weeks?
Once you make a change, the support system and staff in place at the B/D can make your business a joy or a nightmare.
There is no decisive way to measure these attributes, yet there are a couple of ways to assess a good reading. A personal visit to meet with the management and staff is a must before you make any B/D decision. Also, you should always ask for referrals of existing RRs of the firm whose business and situations are similar to yours.
When personally visiting your potential B/Ds, here are a few items for consideration:
- What is the background of management and staff?
- How long have they been in the securities industry?
- What are the short and long term objectives of the B/D?
- Does the company have a “mission statement” that is consistently expressed by management and staff?
- Do the goals of management coincide with the objectives of the support staff?
- MOST IMPORTANT, do the members of the B/D spend more time talking or listening? A B/D that listens will typically make a good partner.
- What is the B/D doing to plan for staffing growth?
TIP: Compare the ratio of staff to producers. Will there be enough staff to assist when other producers are added? A good rule is that one staff person should be able to handle up to 50 producers.
Commissions & Expenses are among the most difficult items to compare among B/Ds; be specific when asking your questions.
Some prominent costs you should look for include:
Execution and Ticket Charges – WHEN are these expenses charged? Do they come out before the commission payout is calculated or after?
Licensing Cost – Who pays for your home state registration and FINRA charges? Are there any “administration” fees charged by the B/D?
Monthly and Annual Fees – ASK for a complete list of ALL charges.
Research and Marketing Materials – Will you be charged for these services and are the costs mandatory?
Trade Errors, Interest Credits/Debits – Are these charges deducted from your gross commissions or net commissions?
Forms and Supplies – Determine who pays for these. Some B/Ds charge for the required new account forms.
Trails – Do they pay all trails to you regardless of the amount earned or do they only pay if the commission totals $1.00 or more?
TIP: Many trail commissions are less than $1.00 per account when paid.
Commissions – Do they hold commissions from a vendor if they do not exceed a certain dollar amount? Some B/Ds do not pay commissions unless the amount earned by the rep is more than $25.00
TIP: Depending on the number of accounts you have with a particular product sponsor, you could have several trail situations earning below $25.00 on a quarterly basis, thus not getting paid to you.
Errors and Omissions Insurance – Some B/Ds claim to have RR E&O insurance, yet this is an extremely difficult comparison. Be aware that some B/Ds do not carry full coverage for their RRs, even though the RRs are paying for the cost of the insurance.
Note: This can sometimes lead to a major cost variance with the difference in cost as well as types of coverage.
TRICK: The Money Foundation has special comparison form of 32 key questions regarding Errors and Omissions (E&O) Insurance.
The members of our think tank evaluated some 150 B/Ds. Therefore, we really do understand that no B/D is perfect in every respect. Yet as in any business, some are certainly better than others.
The first major question a B/D will ask you is: Is your Form U4/U5 clean?
TREND: Some B/Ds will not accept anyone with prior bankruptcies or other minor negative issues no matter the circumstance or how many years ago they occurred. If you have any of these issues you need to be aware that every B/D and FINRA, at the time of moving, requires a special review process which can slow your transition considerably.
TIP: Planning for the time it takes your license to clear is key for a smooth transition. Be up front and disclose everything in the beginning rather than waiting to see if it comes up. There are ways to successfully move your license under these
special circumstances. You should be informed of any extra time needed for processing as well as seek advice if needed.
If your U4/U5 are totally clean, here are six key points in various evaluation areas to consider:
- Analyze the financial stability behind the people handling your commissions.
- Review compliance and regulatory record
- Research products and systems capabilities.
- Evaluate the calculating of your commission payout. Is it 80 percent of 100 percent or 80 percent of 90 percent net?
- Assess the commitment of management and the quality of the support staff.
Costs and Expenses – Different B/Ds have different ways of structuring expenses. Remember, when evaluating costs, be certain that you are comparing “apples” to “apples.”
Here is some expanded wisdom about each:
Financial Stability – With the amount of unprecedented changes that have occurred in the financial industry over the past few years, the financial integrity of a B/D is of paramount importance. The financial strength of the B/D you select will impact you and your clients in several ways.
Here are some of what The Money Foundation think-tank members consider when investigating a potential B/D’s stability.
Past and Current Profitability – You want the B/D to demonstrate a record of consistent black ink performance.
Quality of Earnings – Showing profit is not always enough. Look for dependable income sources that are not tied to any one product or service. Simply put, how well diversified are they?
Liquidity – What percentage of the firm’s assets are tied up in real estate, equipment, or “good will”? A substantial percentage should be cash or marketable securities. After all, cashing in the equity of a home office building may be difficult during tough times.
Future Liabilities – Past involvement in underwriting limited partnerships or questionable products could result in future legal action. Not to be overlooked, of course, is past and pending litigation against the firm. This is another source of future liability. You should be aware of it as well as question it.
Excess Net Capital – Net capital computation is a measurement of financial health imposed by FINRA. It is determined by subtracting the liabilities of the B/D from the liquidity of FINRA “allowable” assets. Why is this calculation important? Because, if a firm fails to maintain a minimum amount of net capital, FINRA will force the B/D to discontinue operations.
Affiliated Companies – Investigate any firms affiliated with the B/D. A weak parent company can cripple the B/D, even if the B/D is strong. On the other hand, a strong parent company should be regarded as a vote of confidence for the financial future of the B/D. Any subsidiaries should also be reviewed.
TIP: How to obtain this information… request the following from every B/D in consideration.
- Latest audited financial statement
- Most recent Focus I & II reports
- Annual report of the B/D and/or parent company and any subsidiaries
Is it ever possible for a B/D to be too healthy financially when they are responsible for handling your money, your commissions and your client’s savings? Look closely at this evaluation criterion first. Many B/D’s we reviewed have had major problems in this area.
BIG TIP: If a company does not pass this financial evaluation, eliminate them from consideration immediately.
The Compliance requirements for the securities sector are among the most stringent and complicated for any industry.
No B/D should over complicate these rules!
Consider the following:
- Review the compliance manual. It should be complete, easy to read, and show indications of recent updates. (most B/Ds update monthly)
- Does the B/D have a history of regulatory problems?
TIP: This information is documented on the Form B/D filed with FINRA. The B/D should be able to supply you with a copy.
- Is there a simple program and procedure that will help you stay in compliance at the branch level?
- Does the firm have a director who is responsible for compliance? How qualified is that person?
TIP: Ascertain how much paperwork is required by the B/D to be maintained by you. Are blotters, cross references, etc…, handled by and always available on the web via your own computer? The Money Foundation think-tank has discovered many questions that can help in ferreting out this issue.
TIP: If your license has any black marks, there may be an additional $95.00 processing fee assessed by FINRA. As outlined by FINRA this charge applies to “all registration, transfer or termination filings with new or amended disclosure information or that require certification as well as any amendment to disclosure information.”
Time is of the essence…
Plan now for your destiny
Once you have decided to switch from one B/D to another, a number of tasks will need to be completed. A timeline is the most important tool you have for ensuring that these tasks are completed on schedule.
Here is a list of typical tasks and an estimate of the lead-time you might allow:
- Write down your dream contract. Remember, this is your dream contract, it is not the B/D off the shelf contract… so you need to know what you want in your contract. Write down your ideas for a dream B/D to sign your contract.
- Establish or purchase computer, fax, quote equipment, telephone lines, internet access, phone numbers and office equipment. Office space leases (if necessary).
TIP: With today’s computer technology and internet capabilities, there is no reason why you can not work from home, if that is what you desire to do. Yet, you still must prepare your space so that work can be accomplished at home. Also, that space may need to be licensed as a formal branch office, and be auditable.
- Order needed product information – i.e prospectus, brochures, annual reports, etc.
Operational forms – new account forms, ACAT forms, order tickets, etc. Research and subscriptions. Computer data links established for accessing information via an internet connection will be necessary.
- Signage – for door and/or desk. Also, SIPC signage must be visible with B/D name for a formal branch location. This needs to have advertising submission and approval.
- Schedule a date for procedural training. Allow enough time before your first trade date to deal with any questions you may have, yet not so much that you forget what was learned.
- Determine which insurance companies you need to be appointed with if you are insurance licensed. Make sure you are licensed in every state where you have a client as a resident or non-resident.
TIP: There is a website (www.nipr.com) that will connect you directly with each state insurance department to determine how to license with the state. Remember all variable appointments must go through the B/D registration department.
TRICK: Get the B/D’s registration department to do appointments for you. Make a list of all fixed insurance vendors that you presently have client accounts with and have them start the appointment process for you through their general agency.
TIP: Compare the existing product selling agreement list at the new B/D. If any vendors are NOT represented on the B/D’s list you should ask the B/D to obtain a selling agreement with them.
- Draft and prepare a letter that will be mailed to your existing clients to announce the change you are making. *Note – This is required by FINRA to go out to all clients, and can be mailed as the last correspondence to every client at current B/D or it can be done at the new B/D with advertising approval. Make a list of who received it and a copy of the letter.
TIP: The Money Foundation upon request has some great examples which can be adapted to your personal situation.
- Obtain a list or create a list of client accounts that identifies the registration, product sponsor, client social security and account numbers.
- Prepare ACAT forms for brokerage accounts with everything completed, and signature areas clearly identified for client ease.
- Complete new account forms and proper documentation for establishing your client’s accounts with the new B/D.
- Establish new files for clients so that you will be able to easily monitor the progress of your transition.
TIP: Segregate the files of your various outside businesses from your securities business. Use colored file folders to designate each type of business. For example, use orange folders to designate securities files, green for insurance, red for advisory and purple for client lifestyles. That way client files can be filed and segregated by the type of business so that auditors can clearly tell which type of business is represented by which color file folder. Thus, an insurance auditor would only be able to view “green” folders, and so on.
- Make a list of all brokerage accounts noting any with ACH, systematic distributions, IRA adoption, or other special forms so that you know which clients will need those forms completed and added into the new client account transition packets.
TIP: You are required to keep your copy of the client regulatory files in compliance with the policies of FINRA. Many B/Ds want you to surrender all client related files for the management of your clients’ accounts. We suggest making only a copy of the securities related information for your securities client files, then box them for pick up by a designated management representative and require they sign an acknowledgment of receipt.
TRICK: If this applies to your situation, contact The Money Foundation for guidance on how to accomplish this task in one easy step.
- Complete form U4 and transfer license package with new B/D
TIP: The Money Foundation has instructions and a transition team to assist.
- Test all systems in place
- Check and make sure that you have no money owed to the present B/D and document to whom and when you spoke with when verifying this.
- Prepare block transfer forms from the list of product sponsors you previously created on new the B/D block transfer forms (See Transferring your Accounts section for more details)
TIP: Plan to use the FINRA “TAT” program. It can be much faster than the resign and re-register process usually followed. *Note – the TAT program has certain criteria that must be met for eligibility. For more information about the TAT program, see FINRA Manual: section 84-34.
- Resign from old B/D in writing, only when you have everything else ready.
- Begin license transfer.
- Mail client letters and transfer packets.
TRICK: Be smart, here is where you can fire a shot over your old B/D that could save you from a nightmare in the future. Yes, our think-tank has many samples and legal assistance to assist with tailoring your personal letters.
TIP: You are not permitted to move accounts until you have been approved by the new B/D. This however does not mean you cannot be proactive by notifying your clients and mailing information to them.
TIP: As soon as you have a new rep ID, begin to prepare your client negative consent letters for mailing to all clients holding direct business.
There are two primary ways to transfer your securities license.
The First – Requires filing a Form U4 with the Central Registration Depository (CRD) of FINRA. This process takes days, assuming that all paperwork is in order and there are no disciplinary problems on your record.
The Second – Takes advantage of the Temporary Agent Transfer or (TAT) Program. This is available through participating B/Ds and has certain eligibility requirements. See FINRA manual section 84-34 for more information.
TIP: To be eligible, here are some of the TAT program requirements:
- Must live in the United States
- Terminate registration with prior B/D without pending disciplinary or compliance problems
- Join the new B/D within seven (7) days
- Have current registration forms on file with FINRA
- Be free of any kind of disciplinary action in the past
TIP: The TAT program can be used to transfer your license all states except California or Washington, D.C.
1. Get Approved at your new Broker/Dealer
TIP: Background checks, individual state reviews and credit checks can sometimes take as long as two to three weeks.
2. Have your letterhead, envelopes, stationary, business cards, fax coversheet, email disclosure, and signage pre-reviewed. Most B/Ds will not give final approval until you are licensed with their firm.
Be prepared to secure from each client the following:
For all Accounts: New B/D new account forms (one for each account registration) and copies of all related documents (trusts, corporate resolutions, death certificate, probate letters of appointments, powers of attorney, etc…)
Brokerage Accounts: Complete *ACAT forms per each account registration. Each client must complete and sign an ACAT form giving the old B/D delivery instructions for transferring the accounts to the new B/D.
a. The ACAT Form needs to be processed by the new B/D. This process generally takes two to five business days.
b. The old B/D is notified via the ACAT system of the customer’s request and is required to validate the account and provide transfer instructions to the new B/D within five business days.
c. It is important to check ACAT forms for accuracy as well as omission prior to mailing them to the old B/D’s clearing firm. Any inaccuracy or omission could cause the ACAT form to be rejected, in turn delaying the transfer process.
*Most B/Ds are part of the Automatic Customer Account Transfer or ACAT System. The ACAT system is the most convenient way to transfer brokerage accounts
TIP: Some securities cannot transfer via the ACAT system and will take longer to transfer. Those include: bankruptcy issues, insurance policies, annuities, stripped coupon bonds, when issued or when distributed securities, some partnerships, and some proprietary offered mutual funds, CD’s or stocks and bonds.
- Direct Business Accounts: For all accounts held directly at the product sponsor or for other non-brokerage firm accounts (i.e. mutual fund, VA, etc…), complete a new Change of Broker/Dealer form. One for each client registration and product sponsor.
- If block transfers will be permitted by your past and current B/Ds, a negative consent letter will be required in proper FINRA required format (see section #4 below for more details).
- An affirmative letter of instruction (LOI) that indicates the client wishes to move all of their accounts under you at the new B/D.
TIP: You may want to consider sending both documents to the client, in case they fail to return the affirmative LOI.
To the extent that block transfers are possible, after 30 days have passed from the date you mailed your negative consent letters, send a package to your old B/D containing:
- Sample copy of the negative consent letter sent to one of your clients.
- List of clients including names and addresses of clients who received negative consent letters;
- Complete the new B/D’s block transfer form for each client and product sponsor.
- Create your own LOI stating who responded to your negative consent letters and if they do not wish to move with you.
- New B/D’s certification form or letter of compliance with FINRA NTM 02-57
- Your own certification of compliance with FINRA NTM 02-57
The old B/D will certify the forms and forward them onto the new B/D. The new B/D will then also certify the forms and forward them onto their respective product sponsor.
TIP: You, the old B/D and the new B/D will all need to certify your compliance with FINRA NTM 02-57 and we have sample letters you may request.
TIP: Be careful not to cross any legal lines while at, or even after you leave your B/D.
Additional TIPS to help when transferring:
TIP: ACAT transfers between clearing companies will take approximately 7-10 business days to complete. ACAT transfers between B/Ds that use the same clearing firm will generally take 3-5 business days to complete.
TIP: Re-sweep brokerage accounts for any late dividends that may hit the account at the old B/D after it has transferred.
TIP: The key is to know your account holdings so that you may request them accurately on your first attempt.
TIP: Remember to include new client-signed forms for ACH, systematic distributions, IRA adoption, or any other standing instructions on brokerage accounts.
TIP: Once the account has been validated, the old B/D must transfer the securities to the new B/D within five business days.
TIP: Cancel all pending orders.
TIP: Stop billing on Advisory, Wrap, and Fee Based accounts at the beginning of the quarter prior to leaving. This will prevent the RR from receiving fees that will be debited back as accounts are transferred to new B/D and credited to client. Most B/Ds allow a middle of quarter billing providing the client signs a disclosure that they are aware of the billing.
We commend your interest in selecting a dream contract and the B/D of your choice. It truly demonstrates your desire to excel by providing your clients with superior service, which will result in more income and equity in your own business.
We suggest that you start your evaluation with The Money Foundation. Our think-tank believes we offer more of what is needed to succeed today. Let’s get together and explore our mutual opportunities.
For advice about establishing and/or expanding your business, or for answers to any questions not covered by this brochure, please contact:
Sir Alan K. Mooney
(800) 877 – 0083
Our think-tank of “Master Stock Brokers” looks forward to hearing from you.