What are reps thoughts on Upfront Checks?
I got an upfront check in 2001, it was only for 50% of my trailing 12(my book was all transactional). It was still a significant sum. I ended up leaving after a year and settled with the firm for 1/2 of what I owed. It wasn't the best timing with the market, and the check kept me afloat for that year.
Im now at the point where I can command a good size check, but not sure if it's really worth it.
Any good or bad stories?
stay away from it, and go indy. I turned down 440k from smith barney to go indy. I don’t regret it for a minute. No strings attached.
the upfront money will chage your life if you already in good financial shape and can bail you out if you are not. Indy is a good option, if you you already have money saved but so is a check. Honestly, i did not leave for a check, i had no intention of leaving MS until it got unbearable. I was offered more money from UBS(7 year deal), but settled on a regional firm and a 3 year deal. i have no intention of jumping ship again because i am loyal but you never know when a buyout will happen or things will change at my current firm. my company pays for most of my weekly radio show and that would be all out of pocket if i was indy. my company also matches charity gifts or pays part of business organizations that i am involved in. The check made it possible to pay off my home , my mom’ and dad’s home(without teliing them- i found who their mortgage was with and wired money to pay it off), put enough into 529 plans to cover college for my kids, max out me and my wifes 401k’s each year( iwas doing that but she was not, and invest the other money just like i invest my clients money after 3 years i will be able to account for the whole upfront check in these investments. but then again, i did not treat this as a windfall to blow . i treated it as i would with a client who came into a an inheritance… invest and save. i am in my early 40’s and i can retire after my deal and live a better lifestyle than my parents. i wont do that because i am happy now. i looked at independent and it is attractive. i calculated that after expenses indy’s got about 70% and i would get about 50% a the regional counting 401k match. so both are good options. it just depends on your goals and situation
The check is not a “Bonus”…it is transition salary, which is how it is taxed, paid at one time.
You “Comand” a larger check because you are producing more…your new
firm would expect you to continue at that level and more in time…if
this is not in your very realistic goal set, I would reconsider going
A firm is investing in you and you have to deliver…kind of like a
client paying you for the services you deliver. If you do not
deliver, they will want some of their salary back…it’s natural and a
risk for going that route.
I feel the decision should NEVER be based on a transition package, but
rather a business model. A wire, regional, bank, and indy
are 4 very very different models.
However, if you make a change and incur only a temporary (like a year)
disruption to your business, it is a “bonus” to your income. I had a very
good experience, but I was changing channels and my primary method of
business…as rightway recommends being a better reason to move.
There are pitfalls to avoid (like not blowing the money they give you!), but if
done right it is a great option. I think the people who go for the wrong
reasons—namely the $ they’ll get that instant–sometimes scare away FCs
that would benefit from a move from looking at their options more closely.
[quote=rightway]The check is not a "Bonus"...it is transition salary, which is how it is taxed, paid at one time. [/quote]<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Maybe I'm misunderstanding you here, but that's not the tax treatment I've seen. In my situation I got the check and each year a portion of it came due (technically it is a "loan"), the firm would then "forgive” the loan payment, and THAT amount forgiven was taxable as income. Thus, a four year deal is taxed as four installments.
As each payment is forgiven, the firm withholds some exaggerated percentage for taxes, which became the part of it I was really responsible to pay. So, if $100k was the payment, the withholding might be $35k and that’s what I’d pay each year. Uncle Sam, in his magnificent benevolence would give a substantial portion of that back the following February.
[quote=rightway]You "Comand" a larger check because you are producing more...your new firm would expect you to continue at that level and more in time...if this is not in your very realistic goal set, I would reconsider going this route.
I feel the decision should NEVER be based on a transition package, but rather a business model. A wire, regional, bank, and indy are 4 very very different models.
I couldn't agree more. I made the mistake of taking a check early-on in my career and went to a regional firm that was just moving into my area. It was a nightmare between the lack of name recognition for my clients, the vast changes in operating procedures for me and the missteps the firm made getting itself started in its new environment. 20/20 hindsight….
Your right Mike. That is what I meant. You get the check,
then are taxed over the term of the loan. An important component
since the tax due comes out of your pay. The bigger the up front
check, the bigger the tax payment.
I have seen many reps come with a large commission/annuity book that
was producing say a million trailing 12: They get a $700,000 up
front check and some back end stock. Their first pay with
the new firm they have to pay $1,600 in taxes (5 year loan, 26 pay
periods, 30% tax rate). That comes out of production that they do
not yet have, so it builds in arears. A year or so goes by and
they have a pile of arears for which has to be paid out of production,
for which they are not producing due to the crappy book.
They piss and moan and quit. They have spent the $700k on a bunch
of crap and the firm asks for some of the money he or she already spent
back. They immediately come to this forum and post a question as
to how to get out of it without paying them back That is followed
up with a pile or rants about how bad the wire houses, regionals,
All because they cannot figure out why the mean firm did not want to
just give them money for gracing their halls with their presence for a
short and unprofitable period of time.
Its not a bonus check.
You assume firms always deliver anything close to what they promise to an experienced recruit. BofA is in hot water for their "bait and switch" tactics. When a firm is deceitful and fradulent in recruiting, does the advisor owe them the favor of paying them for the pleasure of destroying their career when they were caught lying about the opportunity?