Transition Package

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goforit66's picture
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Joined: 2006-09-07

I'm on a team doing about 1.5MM / yr in production. Could anyone please provide input on what they are hearing on transition packages for moving to another firm? 1x / 1.5x / 2x
 

knucklehead's picture
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Joined: 2006-07-27

goforit66 wrote:
I'm on a team doing about 1.5MM / yr in production. Could anyone please provide input on what they are hearing on transition packages for moving to another firm? 1x / 1.5x / 2x
 

You're on a team that does that much production and you don't already know the answer to your question? What are you, the sales assistant?

JCadieux's picture
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Joined: 2005-01-23

goforit66 wrote:
I'm on a team doing about 1.5MM / yr in production. Could anyone please provide input on what they are hearing on transition packages for moving to another firm? 1x / 1.5x / 2xIt's very difficult to answer this question without more information.  Imagine a stranger asking you  "My 401K grew by $150,000 last year.  How soon can I retire?"Larger books are more likely to bring high multipliers, but there are many other major factors.  It's difficult to predict the size of any deal, since many of the factors are subjective.

  • Ratio of fee based to transactional accounts.
  • Product mix.
  • Velocity.
  • Expected % of transferrable assets.
  • Your LOS and tenure with current firm.
  • Quality and length of client relationships.
  • Likelihood of production growth with the new firm.
  • Level of confidence in a successful transition.
  • Possibility of legal or other complications.
  • Do you bring special expertise that can help the entire branch (for example, language or product knowledge).

Some factors are more important than others.  Perhaps the most overlooked factor is the hiring firm's level of confidence in you.  A good headhunter can help you present yourself to the right manager in the right light.  There are a number of good headhunters on this board, myself included.I'm often asked to define velocity.  Velocity is the ratio of AUM to production.  I've heard this called different things by different people, but the concept is the same.  For example, $1.5M in production with $150M in AUM is at 1% velocity.  Unusually low or high velocity for your firm and type of practice may reduce the value of your book.I should also point out that a junior partner in a team is less likely to get a top-dollar deal than a 'lift-out' of the entire team would.

Devoted SA's picture
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Joined: 2006-03-28

knucklehead wrote:You're on a team that does that much production and you don't already know the answer to your question? What are you, the sales assistant?
 Ouch Knucklehead.
 
 

Biasedrecruiter's picture
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Joined: 2006-04-04

J Cadieux made excellent points. In general I would expect you to get an offer of close to 180% with 125% upfront cash. There are some 200% deals out there but very few qualify usually due to number of moves, compliance, and product mix.
PM me if you would like to hear more.

The Judge's picture
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Joined: 2006-06-06

Question for the recruiters (in particular):
You hear about all these huge checks being offered for established producers.  In general, what happens if the broker fails to bring over a substantial portion of their assets? What if their production falls off a cliff? Are there reprocussions?

JCadieux's picture
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Joined: 2005-01-23

The Judge wrote:Question for the recruiters (in particular):
You hear about all these huge checks being offered for established producers.  In general, what happens if the broker fails to bring over a substantial portion of their assets? What if their production falls off a cliff? Are there reprocussions?It depends on how the deal is structured.The traditional instrument has been the "forgivable loan".  If you fail to meet certain minimums, then the company has the option of taking the money back on a pro-rated basis.Poor performance will still impact the amount you collect in back-end bonuses. These are performance bonuses negotiated up front based upon ongoing performance.200% up front deals are possible, but very rare.  However, it's not difficult to get a 200% total deal when you include back-end bonuses.  (Back end bonuses are also known as "Revenue Deals".)For example, a deal may offer you 100% up front.  Your bonus is then re-calculated at three milestones over the next several years.  If your bonus amount increases at any or all of these milestones, you are paid the difference.  Key multipliers in the formula can be negotiated up front, and are also influenced by the factors I mention above.  With consistent performance, back end bonuses could bring you another 100% on top.Note that some firms ask you to sign a new term commitment with every new bonus.  Others do not.  Also, this is just an example of a revenue deal.  Not everybody qualifies for this kind of deal.  Actual deals vary.

haRDcorp's picture
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Joined: 2006-10-12

This is one of the most impressive and professional blogs I've seen so far- and has rekindled my hope that their are indeed some very good recruiters out there. My hats off to you-
Indy side- also has packages and you're not selling your book to another firm, but creating your own asset to grow. PM me if you want to learn more about the indy side of the economics.

BrokerRecruit's picture
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Joined: 2005-04-19

I second Jeff's comments about poor performance as it relates to the transition.  The up-front portion of the forgivable will take care of the book that the firm is "buying" for x number of years. 
The back-end bonuses are tailored to benefit those whose businesses are in position to sustain current production/asset levels or even significantly grow. 
I have yet to see (personally) any instance where a producer/team has had issues with having to repay any of the up-front amount.  This would be something to carefully craft a question to the BM regarding, if that would be appropriate.

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