The market may be ugly, and the economy may be teetering, but the major wirehouse firms aren't cutting back on the dough they're throwing at new recruits. In fact, the deals offered by the Wall Street majors have only gotten bigger, reaching a new high over the past six months. In part, that's because firms know that the biggest brokers are especially vulnerable right now: Brokerage stocks are in the toilet, damaging the retirement plans of advisors with a lot of stock options. Some firms are dishing out packages approximating 250 percent of trailing 12-months production for the best: advisors who produce over $1 million a year, have assets of $100 million or more, have no marks on their U4s and have worked at no more than two firms in 10 years. Wasn't it only recently that 200 percent was the absolute max?
Granted, around half of this money won't make its way into the advisor's pockets until after he's moved to the new firm, and even then only under certain conditions. Typically, these deals are structured with 125 percent to 150 percent of trailing 12 paid upfront in cash as a 7- to 9-year forgivable loan, with the balance split over the next 36 months according to the advisor's success at meeting certain asset and production hurdles. At smaller regional and independent firms, the packages are less handsome, but still growing. Today, regional firms may offer top deals in the 90- to 125-percent range and independent broker/dealers in the 15- to 40-percent range (with much of that being paid in stock).
Can the deals being offered continue to go up, or have they hit their peak? The simple truth is that no one knows how long these lucrative deals will last. There is good reason to believe the firms will have to cut back at some point. Advisors must ask themselves if the size of the deals being offered is enough to make changing firms worthwhile, especially if things look just fine from where they currently sit.
Sam, an advisor with a wirehouse firm in the Southwest, is asking himself just that. Sam has trailing 12 of approximately $1.8 million on $230 million in mostly fee-based assets. He has a clean compliance record, and has never changed firms during his 26-year career. While he is frustrated by recent negative media attention about his firm, and a sharp drop in his firm's stock price, he is actually not that unhappy in his current digs. He works four blocks from his house, has a good relationship with local management, and believes he has the support and resources necessary to continue to grow his business. But Sam also knows that the deals being offered to entice brokers to move will not remain at these lottery-like levels forever. Plus, he had planned upon making at least one well-timed move during his career — to monetize his business. What's more, his clients seem to be nervous about his firm's giant mortgage-related write-downs.
Sam decided to meet with all of the major competitors in his market, and received offers from his three top choices at approximately 225 percent of his trailing 12. Because he is in growth mode, he stands to earn a whole lot more than that by the end of three years. “Is it the right time to hit the eject button?” Sam is asking himself.
Of course, the value of making such a move is far greater for a top producer. While deals for the best are moving up, it has become less and less likely over the past year or so that an advisor producing under $400,000 will be actively recruited by any of the top brokerage firms. That is, unless he is what is considered a rising star, an advisor who is very new to the business, but has quickly ramped up his growth.
While there are many changes occurring in the industry today, there are also tremendous opportunities for those financial advisors who are open to taking advantage of them. It might be time to start asking yourself some difficult questions.
SAM'S DEAL: THE BREAKDOWN
Sam will get 225 percent of his trailing-12 production if he brings over 110 percent of his client assets at the time of recruitment. (That 110 percent can be calculated using new assets from old clients, or new assets from new clients.)
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Trailing-12 Production: $1.8 million
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Upfront cash bonus: $2.52 million (140% of trailing 12)
EXTRA CASH BONUS TIED TO ASSET GOALS:
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When 75% of assets move with him to new firm: an additional $450,000 (25% of trailing 12)
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When 90% of assets move with him to new firm: an additional $450,000 (25% of trailing 12)
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When 110% of assets move with him to new firm: an additional $630,000 (35% of trailing 12)
Total cash payment: $4.05 million (225% of trailing 12)
It is also possible that total cash could be much higher in the end, because there are no caps on the back-end bonuses, and the percentages are based upon actual production at that time he reaches those asset goals. So if Sam has increased his production above the $1.8 million he was doing at the time of recruitment, he would profit even more.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com