Conflicts of Interest & Recruiter Compensation

Financial advisors have to disclose how they are compensated at every turn. Why? Because your clients need to know what incentives you have to recommend one decision over another.

That doesn’t mean the product that benefits you is the wrong choice for them. It just means that they deserve to know if there’s a conflict of interest. Transparency removes the “scandal”, so to speak.

But what about recruiters and independent consultants? I’m sorry to say that today, we’re looking at the dark side of my space.

The Dark Underbelly of Recruiting

When I look at my space–independent consultants for transitioning advisors–there are more than a few issues around the topic of compensation. Compensation in my world is not a one-size-fits-all scenario. 

Independent consultants may encounter a spectrum of potential compensation depending on where their clients decide to move their business. Someone like me may stand to make tens of thousands more (or less) depending on which firm you decide to work with. 

This is caused by anything from the size of the offer you receive to additional bonuses paid out by an RIA, OSJ, or BD as a commission.

Unfortunately, I know more than a few stories where a consultant like me behaved, well, suspiciously. They only focused on firms with more favorable compensation structures. Or they neglected firms that would have been a great fit but had less commission value. Or worse, they actively steered advisors away from great fits because of the compensation gap.

I get it. We all are in business to make money, but when an independent consultant prevents you from finding the best firm for your practice… it’s something we need to talk about.

How to Uncover Conflicts of Interest

First, let me say that I wish this were a standard practice for consultants. If you work with me, you will always know how I’m compensated. I put that out on the table, so you never have to wonder where my advice is coming from.

But if you’re considering working with another consultant to transition firms, it’s important that you ask this question directly. Like with a used car or a house, how they answer this question tells you a lot.

I would ask this question before doing any work with a consultant: “How are you compensated for helping me? Are there any firms that are likely to pay you more than others?”

If you’ve been talking with one already and are exploring recommendations, I would highly encourage you to ask a more specific question: “What’s the compensation difference for you between Firms A, B, and C?”

Do they give you a straight, confident answer? Are they stuttering their way through? Not directly answering your question?

You’re not trying to trap anyone–just protecting yourself and removing any unknown factors in the advice you’re receiving.

Advisors Choosing Advisors

At the end of the day, you should expect the same level of integrity you show your clients. Compensation and conflicts of interest are a central part of this trust.

In my role, there are always going to be varying incentives. The money can never be the priority though.

I’m here to serve you–to help you search and find the best BD, OSJ, or RIA that fits your needs. If I serve you well, we all do well.