It is prime hunting season at Bear Stearns (BSC). While JP Morgan (JPM) has yet to announce what it plans to do with the 550 Bear Stearns brokers it gained in last week’s fire sale, employees of the newly acquired investment giant are slowly being picked off by rival firms.
Last week, a U.S. Federal judge temporarily blocked former Bear Stearns executive director Douglas Sharon from recruiting clients and co-workers to join him at Morgan Stanley, (MS) after the competitor hired 12 of Bear’s brokers.
"When a broker bolts for a competitor—usually late on a Friday afternoon—there is a scramble while the broker contacts all of his clients to try to get them to move over to his new firm," says David Gardner, an investment advisor with Yellowstone Financial based in Boulder, Colo. "Brokers will often receive lucrative offers to move over to other firms and competition can be fierce over the best brokers."Meanwhile, the jilted brokerage firm also makes an effort to keep clients. "The old firm will usually offer some inducement for clients to stay, whether it’s reduced fees or discounted transactions,” says Gardner. Even if your investments aren't with Bear Stearns, your broker could be contemplating a switch. According to the National Financial Broker and Advisor Sentiment Index, the number of brokers and advisors who are considering leaving their firm doubled last year to almost 10%. Meanwhile, 42% of brokers stated "finding new customers" as the number one challenge when starting at a new firm, making it clear that keeping clients is a top priority.
The first thing to do if your broker decides to move is to ask why. "You want to find out whether the decision is being made because the advisor wants to do it, or because the firm is asking him or her to find another home," says Neil Elmouchi, president of Summit Financial Consultants, in Westlake Village, Calif. You can always verify that there’s no questionable motivation by asking to see their Form BD, which requires disclosure of relevant criminal, regulatory and civil proceedings.