A large number of brokers labor under a group of myths and misconceptions that keep them from managing their careers effectively.
They may want — or need — to change firms but hesitate to do so out of fear of amorphous “difficulties” that might arise. Or maybe they hear rumors of rich transition packages and assume these can be had with little or no negotiation. Or perhaps they assume they cannot switch firms before building a book to a particular size. Many do not fully appreciate the pros and cons of wirehouses vs. independents, and fewer still understand the bank route.
This inaugural Career Moves column aims to dispel some of the most persistent and damaging of these myths. In future months, this space will be used to set forth specific strategies that brokers can use to manage their career paths with confidence.
There is a magic production level I must attain before I can switch firms.
Waiting to make a move is not always a smart move. Indeed, the fact that an advisor's book is not growing fast enough might be a sign that a change of firm is in order. For instance, a firm with more proactive branch management might help the advisor grow his book faster, or perhaps a bank brokerage with its deep referral sources could help build the client base. For more experienced brokers, certain wirehouse arrangements might help in the quest for high-net-worth quarry.
In any case, the question should not be, “What is my current level of production?” but “How can my production be improved with a move?”
I need to wait for the ideal time to move.
Many brokers believe the best time to move is when their production is down, when actually the reverse is true. It is best to move when you have momentum, because you come to negotiations with a strong stance. Keep in mind that even a change within a present firm structure requires a broker to adapt to operational and management changes.
When moving to a new firm the broker can take advantage of a substantial transition package, and, for those looking to change their books from transaction-based to fee-based, that money is an invaluable cushion. Further, moving firms can help an advisor negotiate a transition package that will monetize the equity he has built in his business while also giving him the ability to start with a fresh manager, location or business focus.
I must limit my search to wirehouses when considering a move.
There is so much more to the brokerage industry than being a W2 employee of a wirehouse. When brokers look under the hood of boutique and regional firms, they often find more flexibility, greater access to senior management, higher payouts, more autonomy, comparable research support and generous transition packages.
Brokers need to educate themselves on the options available to them in two additional sectors: bank brokerage, with access to a deep referral network, or the world of the independents.
If I can get a transition package, I should move.
As a general rule, brokers should move at least once in their career, but almost never more than three times. The main reason to move is that a book of business represents a monetized, saleable asset, and those who stay with a firm for an entire career lose the opportunity to cash out on this equity. To be sure, each move must be approached carefully, and the benefits must be clear. Lastly, each move should be made as though it will be the last. This ensures the motives behind moving are valid ones.
The biggest transition packages go to those brokers with the biggest books.
Deals across Wall Street are currently the biggest and best they have ever been, if you fit the right profile: Transition packages are best for brokers from wirehouses or regional firms who have not been with more than three firms in the past 10 years, who have clean compliance records and who have a return on assets at or near one. Also important: a minimum of 30 percent in fee-based business and gross commissions in excess of $400,000.
These brokers are receiving 100 percent to 120 percent of trailing 12 months upfront, 70 percent to 80 percent in cash and 20 percent to 30 percent in stock that vests over seven years, plus additional bonuses at 12 and 24 months.
For the first time brokerage firms are addressing unvested deferred compensation. Up until now, this was the single biggest reason for brokers standing pat. For many, deferred comp represents hundreds of thousands of dollars. When reimbursed for all or part of the unvested deferred comp, brokers are receiving a key to the golden handcuffs.
I'll get cleaned out by my current firm if I try to jump ship.
There are a number of strategies that can help a switching advisor protect his book. First, though, make sure to approach the change of firms in a professional manner: Do not leave in anger, and never badmouth your former employer.
Always plan to resign as late in the day as possible on a Friday. If you do, the soonest your present firm could get a temporary restraining order (TRO) would be the following Monday morning. (Note: Contrary to popular belief, holiday weekends often are a bad time to resign, because clients are less likely to be reachable.) The idea is to get as much time as possible to contact clients and have them sign account transfer forms.
The firm you move to is as invested as you are in helping you transition your book of business. Look to them for direction in these matters.
If the thought of changing firms fills you with dread, you're not alone; the vast majority of brokers are fans of the “devil they know.” But the reality of the brokerage business is that it's a mistake to let fear and mythology keep you from exploring what could be a significant professional upgrade.