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Three Options for Advisors Who Are Feeling 'Stuck' in a Retention Deal

While many advisors once willingly accepted their firms’ 'golden handcuffs,' some are now wishing they hadn’t.

In today’s increasingly competitive marketplace, brokerage firms have doubled down on their efforts to retain top talent. With a vast arsenal of retention tools at the ready, advisors regularly face choices that solidify their obligations—as well as connect their assets—to the firms they work for.

It’s “opportunities” like these that sound good at first: accepting a retention package, buying a book of business from a retiring advisor, becoming a successor or even receiving a bonus. Yet each comes with strings attached that monetarily tie advisors to the firm through unvested deferred comp or unamortized loans.

And while many have willingly accepted these “golden handcuffs,” what happens if, over time, the firm is no longer the best option for the advisor and his clients? Does signing on the dotted line mean an advisor is stuck?

Not necessarily.

Although the thought of leaving a firm—especially if an advisor owes his firm money—sounds impossibly complicated, the good news is that the advisor does have options.

When considering whether a change is in order, advisors need to ask themselves some tough questions:

  • Is my growth being limited by the firm? And to what extent?
  • Is my ability to service clients being adversely impacted? How much so?
  • Is the pain temporary, or are the disruptions likely to be permanent?
  • Would staying put further bind me to the firm, making a future move even more difficult than it would be if I left now?
  • How much would I owe as a result of leaving early?
  • What are the economics of making a move and how does that compare to what I owe?
  • How strong are the pulls toward another firm or model?

After gaining clarity through this exercise, advisors are better prepared to assess their options. Ultimately, there are three choices available:

1. Stay with the current firm.

Even though an advisor believes the firm is no longer the best place to grow his business, he can choose to accept the limitations and stop wondering “what if.” This means making an active decision to fulfill the terms of the agreement and continue servicing clients to the best of his abilities within the confines of the firm.

2. Move to another traditional firm.

Firms are still offering significant transition money, which may include reimbursement for unvested deferred comp for top advisors. As such, there may be a firm that offers a closer version of “perfection” and solves for the monetary impact.

3. Move to an independent model.

Although a move to independence may seem like the riskiest choice because it means relying upon future success, it’s become a legitimate option for advisors due to the long-term upside. If start-up capital is needed, there are many loan options available, plus willing investors with deep pockets who are anxious to get into the space.

The reality is that as firms continue looking for ways to tie down their workforces, more and more advisors are reconsidering their futures. While many will decide that staying with their firm is the best choice, others will choose to break the ties that bind and move on.

Short of being able to predict the future, advisors owe it to themselves to thoroughly consider the potential impact their choices can have. So, before signing on the dotted line, it makes sense to ask, “Could I live with whatever happens five years down the pike and still feel this was the best choice?”

But for those advisors living with a decision that no longer serves them or their clients, it’s important to remember that with creativity and an open mind, no one is ever truly stuck. There are always options available.

Mindy Diamond is President & CEO of Diamond Consultants in Morristown, N.J., a nationally recognized boutique search and consulting firm in the financial services industry.

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