WealthManagement Magazine

Don't Be Afraid to Go for It

Any discussion of upfront money must proceed from one very important truth: a well-managed career usually includes at least one big job move. Openness to switching firms is essential if a broker wants to take advantage of an industry that can, and will, provide brokers with opportunities to capitalize on a lifetime of hard work. That said, being open to switching firms means understanding the benefits

Any discussion of upfront money must proceed from one very important truth: a well-managed career usually includes at least one big job move.

Openness to switching firms is essential if a broker wants to take advantage of an industry that can, and will, provide brokers with opportunities to capitalize on a lifetime of hard work. That said, being open to switching firms means understanding the benefits of the transition packages the hiring companies proffer. True, not all packages are created equal, and the ones that sound too good to be true often are. But for the careful advisor, transition packages can be a once-in-a-career boon.

The Best for the Best

It's no secret that the most aggressive transition packages come to brokers with high production ($400,000 a year and above) and assets under management ($40 million and above). It also helps if the broker is not a hopscotcher (fewer than three moves in 10 years) and has a decent sized fee-based book (40 percent of total assets).

Before the tech wreck a few years back, these prerequisites were much lower — or, in some cases, non-existent. As a result, many marginal brokers were offered transition packages they were unable to support when market sanity returned. Now these brokers feel like indentured servants, handcuffed by their own mistakes.

When a broker accepts a transition package, he must understand that it is a loan, plain and simple. In a typical transition package, the broker will receive 70 percent as cash upfront, plus 30 percent in stock, structured as a four- to seven-year cliff vest depending upon the firm. Incremental bonuses are often given at months 12 and 24. The upfront money must be invested conservatively until the broker's contract period ends, at which time the loan is completely forgiven. Several firms have opted for longer forgiveness periods in direct response to broker requests for more time over which to spread the tax bite. (For a seven year contract period, the broker would pay taxes at the rate of one-seventh per year. Baltimore-based Legg Mason is the industry exception, requiring that all of the taxes be paid in the first year.)

But strategic career planning should be about much more than transition packages. The top reason to consider a move should involve getting an opportunity to expand your book faster (by gaining access to a referral network, for instance, or to join a branch manager who will be more helpful). Other reasons include acquiring the ability to reach a higher-net-worth client base (by joining a firm that has a greater depth of product and service in this area) or to improve your quality of life (perhaps to go independent and receive a higher payout and complete autonomy).

Transition packages come into play, of course, because they can help make a move possible. But like any expenditure on credit, they should be evaluated carefully. Here's a brief example, drawn from my personal experience, of how transition packages should be handled:

A young wirehouse broker with a trailing 12-month production of approximately $400,000 worked in a branch where the other brokers were more established. The branch manager was not interested in serving as a mentor for him, so the broker looked to make a change. He eventually joined another wirehouse with a branch manger committed to helping him grow his book. Among other things, the manager promised marketing assistance, money for seminars and sales support. The broker got all promises in writing and has wisely invested his significant transition bonus in a low-risk vehicle. He signed a five-year forgivable loan. His vision is to remain with this firm for the rest of his career, but should anything unforeseen happen, he will have the money to pay back the unforgiven portion of the loan.

As his experience shows, changing firms can be a wise move, but it needs to be approached carefully. In the end, the upfront money is the “icing on the cake” of a thoughtful career strategy.

Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting (www.diamondrecruiter.com).

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