During trying times like these, many reps are looking to switch jobs. When pondering a move, no question occupies more time or discussion between brokers, hiring managers and (sometimes) recruiters than the following: “What's in it for me?”
This question, which I hear repeatedly when talking to brokers, isn't easy to answer. That's because a typical branch manager has to look at many variables when deciding what kind of compensation package to offer. In the branch manager's eyes, the ideal broker has a large and very movable book, most of which is fee-based; has been in the business for fewer than 10 years; has changed firms less than three times. Knowing this, let's examine what's in it for you these days.
First off, there's been a dramatic change in deal structure. The time might never return when a broker can get an entire package in a lump sum as a signing bonus. The top such package during the market peak included 150 percent of trailing 12-month production, all paid on day one.
In hindsight, most of these packages were poor investments for the firms. Many fee-based brokers moved and had their assets under management greatly reduced. Also, the brokers who produced the most revenue at the market peak were transactional brokers — the very same brokers who have had the biggest falloff in production. Not surprisingly, some of these folks who didn't deliver are the ones being escorted out of their offices in yet another “right-sizing.”
Though wirehouses might still offer packages that approach or top 100 percent of the last 12 months of gross production, top regional firms rarely exceed 85 percent. Banks seem to stop at 70 percent, and independents rarely if ever give financial packages to incoming brokers, because the exceptionally high payout their brokers receive is usually incentive enough.
While packages are now smaller, the most significant change is when brokers get their money. It's not coming in one big bag anymore. That's a loss. It can, however, protect a broker against a firm's coming after him later for a forgivable loan that swiftly morphed into a shiny Bavarian roadster.
All firms are now spreading out their packages over time — from 13 months up to 10 years at one firm. The “forgivable loan” that the broker signs is an agreement to repay part or all the bonus if the broker does not stay with the firm for the agreed amount of time. While this has an inherent downside, there is also a real tax advantage. For example, a five-year deal allows the broker to spread out the taxes owed over the same time period, so money received on the first day will be taxed over five years.
There are several other components to these packages: signing bonuses, asset-based bonuses and production bonuses, as well as incidental perks. The signing bonuses rarely exceed 50 percent and are most often in the 15 percent to 25 percent range. That leaves most of the bonus actually tied to the broker's hitting his first-year goals. This is a big win for the firm. For instance, if a broker who has $50 million in assets brings over an agreed-upon amount (80 percent is a common target), then that broker at the end of 12 months will receive an asset-based bonus, often one greater than the signing bonus.
Firms assume if a broker brings most of his assets under management to a new firm, then his revenue (the basis for the firm turning a profit on the broker) will follow. A production bonus, simply put, protects the firm. For instance, a broker who has produced revenue of $500,000 in the past 12 months will have a bonus tied to that amount; he may receive 50 percent of that amount as a signing bonus, and the remaining roughly 50 percent paid 12 to 14 months later based on what is actually produced during that time. It is in this manner that deals can sometimes actually “exceed” 100 percent and greatly benefit the broker, too — assuming that the next 12 months prove outstanding for that broker.
There are no hard and fast rules on what a broker can expect to receive when moving from one firm to another. And it isn't a surefire way to secure a big bonus anymore. No two brokers are exactly alike — and no two books of business are exactly alike. If yours gets better, however, then there's truly something more in it for you.
Nicholas Ferber is the managing partner of the banking and brokerage business of executive recruiters SolomonEdwardsGroup.