21 questions to ask a prospective new broker/dealer

By Jason Kestler

Kestler Financial Group, Inc.


1. What is your position on fixed indexed annuities (FIAs)?
If you are selling FIAs, this alone could be a deal breaker.

2. May I see a list of your approved products?
While most B/Ds have selling agreements with most “traditional” vendors, EIAs are not distributed in that manner. Most of these products are distributed by independent or company-owned wholesalers. Keep in mind, not every product or wholesaler is approved at every B/D.

Another reason to look at the actual list is to see which products and which carriers are represented. A recruiter may say, “Oh yes, we have Company X,” but fail to tell you they only have one product approved with Company X – the one nobody sells.

3. Does the sale of fixed or FIA products count towards my total gross dealer concession (GDC) calculation and, if so, will this production tend to drive up my overall payout percentage?
Since there are so many different compensation arrangements, be sure you know how each B/D prospect counts production.

4. Is the commission percentage you quoted me the same for all lines of business?
Often, different lines of business carry different payout percentages. For example, variable annuities may have an 80 percent payout, while general securities pay 75 percent.

5. Since moving brokerage accounts held in street name may incur termination fees, will you help defray that cost?
Termination fees on brokerage accounts can range from nothing to over $100 per account. Be sure you understand the fee structure of the firm you are leaving and what help, if any, you can expect from your new firm.

6. What about Errors and Omissions (E&O) coverage?
Most firms today require you carry their group coverage. Since these plans are billed to the B/D on an annual basis, be sure you understand your obligations to your old firm upon termination and the requirements of your new firm.

7. Do you have any monthly maintenance or affiliation fees?
Affiliation fees are a way for a B/D to balance out their profitability for marginally productive reps. They can also hide the cost of other “free” benefits.

8. What types of software support do your offer? Are there fees associated? How about technical support?
Software can make your job easy or turn it into a nightmare. Be sure the tools are available to run an efficient practice and the support is available for when things go wrong.

9. Who owns the B/D?
Look for potential conflicts of interest. For example, insurance company B/Ds are a great choice if you are a career agent for them and only sell their products. They can be hard to work with if you are truly independent.

10. What is your transition strategy?
You don’t want to change B/Ds every time there is a change in ownership. If you see a lot of gray hair and no firm transition plan, be cautious. Also be cautious if there is a conversation about an impending firm sale or acquisition. Changes in management or ownership mean changes everywhere.

11. In what ways will you help me build my business?
Look for specific programs or strategies, not nebulous “support” doublespeak.

12. Who will be my immediate supervisor or OSJ?
Although you are interviewing B/Ds, this is the person with whom you will most likely have the most contact. If there is a conflict here, everything else falls apart.

13. What are your requirements regarding continuing education (CE)?
Online firm element CE is convenient, while group training can offer other benefits. Be sure you understand the requirements and costs involved with each.

14. How many reps do you currently support? What is their average, annual GDC production? What is their product mix?
The answer will tell you whether your future colleagues are at, above, or below your production level. Good information for the competitive type. It also tells you what type of reps have chosen the firm previously. Product mix can tell you how closely your business matches theirs.

15. Can I get a few references for local reps?
Although they most likely won’t give you a list of unhappy reps, these reps can give you an accurate taste of how day-to-day operations flow. Ask them questions like: How did your transition go? What do you like best about the new B/D? What could they do better? Were there any surprises?

16. What is your commission pay cycle?
It’s nice to know when you can expect your paycheck (or EFT).

17. Are there different payouts for different types of trades?
Some firms offer high “teaser” payouts on proprietary products and lower payouts on other lines.

18. Tell me about the firm’s compliance history.
It would be a good idea to visit www.finra.org and go to the broker check area. Here you can find information on registered reps (check out yourself) and broker/dealers. Ask for clarification on any final actions but keep in mind it’s almost impossible for a firm to maintain a spotless history. Look for trends in the reports. If they had a problem, did they fix it?

19. Do you have a written suitability policy? Who makes suitability decisions?
Obviously, the primary suitability responsibility falls on the rep. However, all broker/dealers have one or more additional suitability checkpoints. Typically, these would be the supervising principal or OSJ and the home office compliance department. Understanding who has final say is important. Would you rather have the final say with somebody who has 20 years of field experience working directly with clients or a home office compliance officer who has never been in the field and uses an arbitrary checklist?

20. Do you offer any transition assistance?
This question can cover a lot of ground (see our article entitled “The truth behind securities payout offers.”) Transition assistance can be anything from assistance in document preparation to outright cash. If you don’t ask, you’ll never know.

21. Do you offer company paid incentive trips for top producers?
These can add significant value to an overall compensation package.