Financial Consultant Retention & Succession Planning

When a Financial Consultant moves to another broker-dealer, the best member investment accounts tend to move with the FC.


More credit unions are recognizing the need to have a clear Retention & Succession Plan for their top producing Financial Consultants (FC) in their investment services programs. The member/client "book of business" that the credit union and the FCs have built together represents a valuable asset and a significant flight risk to the credit union in today's competitive marketplace. Credit unions, rather than the FCs, have made the significant investment in this channel. When an FC moves to another broker-dealer, experience shows that the best member/client investment account relationships tend to move with the FCs.

Up until now, most credit unions have felt relatively comfortable that it is absolutely clear to their FCs that they do not have any "ownership" of the member relationship at the credit union. Virtually all broker-dealer agreements between the FC and the credit union clearly detail this ownership as well as additional language related to the confidentiality, privacy, and non-solicitation of the member/client investment account relationships.

As many credit unions know, however, FCs leave and move to other broker-dealers and members do follow them. Further, some FCs have clearly violated one or more of the non-solicitation provisions in their FC agreements resulting in further erosion of a credit union's member investment book of business. While there have been some credit unions that have been able to win settlements against FCs that have violated their non-solicitation agreements, it is costly to litigate – not to mention the significant member and organizational disruption that results when an FC leaves.

Being Proactive Can Minimize If Not Actually Eliminate This Risk
The best practice approach for credit unions today is to develop a proactive FC Retention & Succession Planning program that protects the investment in your member book of business and incentivizes your FCs to stay with the credit union rather than moving to another broker-dealer. Ideally, this should not cause the credit union to incur any additional expense to put this program in place.

There are a number of elements that should be included in a retention agreement. First, the agreement is best separated into two parts. The first part is the overall agreement and should contain all elements pertaining to the responsibilities, duties and obligations in place during the time that your FC is working with you and your members. Most credit unions already have such an agreement in place with the exception that it does not include a Retention Plan.

The second part is typically be an Addendum to the baseline agreement, titled "Financial Consultant Retention Plan" and contains all of the elements related to the plan's qualification criteria, everyone's responsibilities, duties and obligations and the details of the plan's payout model.

Elements to Include in the Retention Plan
The agreement and retention plan should contain the following elements:

  • That the credit union owns the member/client book of business and that the FC does not have an ownership interest in the member/client book of business;
  • Standard confidentiality and privacy act language
  • A clear non-solicitation agreement that details its duration and expectations – especially if the FC chooses to return to the investment business outside of the credit union program. Some agreements prohibit the FC from being involved in the investment business in a sales capacity dealing with customers for a certain time period;
  • An "Account Transfer Credit" component that comes into play when a member decides to follow the FC to another broker-dealer. When this happens the FC's payout would be reduced on a pro-rata basis;
  • The criteria to be eligible to participate in the plan:
    • Minimum amount of time working with the credit union;
    • Minimum level of recurring revenue and/or assets being managed;
    • Requirement of the outgoing FC to be actively involved in the recruiting of the new FC that will be taking over the member/client book of business;
    • That the new FC must be in place and working jointly with the outgoing FC for no less than ninety (90) days prior to the outgoing FC's departure from the program;
    • That the FC must be in good standing with the credit union and all regulatory authorities and agencies that he or she is subject to;
    • That the FC agrees to all of the provisions of the Retention Plan.

For more on Financial Consultant Succession Planning, consult the 2009 Credit Union Retail Investment Services Study.