For financial advisors, as for all professionals, changing jobs is a stressful event that deserves a great deal of thought and consideration. For top-quality advisors, however, there is a unique and very lucrative component to changing jobs within the wirehouse world: the transition deal. Today, the deals being offered by the wirehouses for first- and second-quintile advisors can be upwards of 330 percent of an advisor's trailing 12 months production. That sounds like life-changing money — and it can be. But the devil, as they say, is in the details.
Firms structure these deals to get the attention of the advisors they want to recruit, but at the same time, they want a serious return on their investment. Hence, the “back-end bogies” — the production growth hurdles paid out in pieces, typically over five years now, which comprise the balance of the deal after upfront monies (rarely more than 140 percent) are paid. Up until about two years ago, these deals had three backend hurdles based on portability of assets and advisor performance. Most advisors were able to achieve these back-ends. But then, up until two years ago, the deals maxed out at 250 percent — not 330 percent.
Today, with deals at a high water mark, firms are still paying a similar percentage to advisors upfront, but have extended the backend hurdles from three to five years, and raised the bar. This relatively new structure, combined with a few very rough years in the market, made it more difficult for advisors to collect the full value of their transition deals. And yet, there are plenty of exceptions — advisors who are in growth mode and who have deep relationships with clients, a robust pipeline and drive and commitment.
It is in the best interest of the firms, after all, to partner with advisors so that they can meet the growth targets. “We provide our FAs with comprehensive tools, training and significant transition resources to assist in the retention and growth of new assets,” says a Morgan Stanley Smith Barney spokesperson. “Coupled with the strong backing of the Morgan Stanley brand, we have seen our FAs attain tremendous success in meeting their back-end recruiting hurdles.”
Indeed, some advisors go to great lengths to make sure they meet all the hurdles. Take Justin, a regional advisor doing about $1.5 million in production on approximately $200 million of assets under management. In the summer of 2007, Justin made the move to one of his city's large wirehouse branches. Three and a half years later, he has more than doubled his production and assets, with $4.2 million in revenue and AUM of $480 million. How did he do it? He hired a chief operating officer for his team, allowing him to focus on rainmaking; he hired a professional coach; he captured greater wallet share from existing clients.
Of course, even for those advisors who don't meet all of the hurdles, the deals often pay off handsomely. Another wirehouse advisor who moved several years ago was able to double his production in two years to over $7 million, and yet he still didn't get the full 330 percent. “I expected to move all of my assets and to duplicate revenue, but I knew that I wasn't going to increase my business by 150 percent, especially in this economy,” he said. “I received a deal that wound up being worth 260 percent in my pocket and I was happy with that.”
Not every advisor who has moved, or intends to, will hit all of the backend growth hurdles that his new firm sets in front of him. Whether that's ok is up to the individual. But it's important to be realistic. Even more important, of course, is that a move should never be just about the deal and the money. It should be about the advisor's clients, his or her ability to grow, and quality of life.
Mindy Diamond is president of Diamond Consultants, of Chester, N.J., which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com.