One of the biggest pills to swallow for an advisor thinking about changing firms is the idea of leaving behind large amounts of non-vested deferred compensation.
If an advisor has been even reasonably successful at his firm for a number of years, the amount of non-vested deferred comp he is owed could be huge — as much as seven figures. Historically, reimbursement for this tied-up pile of dosh has not even entered into recruiting discussions between an advisor and the firm that is trying to hire him. As we well know, the very purpose of deferred comp is to tie an advisor to his firm for as long as possible.
The New View
Granted, I'm a recruiter, and have an interest in getting reps to change firms. But it's worth asking, what is an advisor really giving up if he moves prior to the vesting of his deferred compensation? While firms have not come right out and said it, the gigantic sign-on bonuses being offered today are meant, in part, to reimburse a moving advisor for his non-vested deferred compensation.
“What about my deferred comp?” asked Phil, a regional broker generating approximately $900,000 in annual production, who wanted to move to another firm. Phil had approximately $300,000 in non-vested deferred comp, which he would forego if he moved prior to 2009. No matter how much the manager of the prospective firm said about the great opportunities awaiting him and the tremendous transition package that the firm would offer, Phil could not get past the fact that he would be leaving money on the table if he moved.
Then he talked to a second wirehouse firm. Though that firm wouldn't say so in direct terms, the deal was in fact structured to take into account a portion of the money Phil would leave behind him if he moved. He was offered 175 percent of production; 100 percent in cash up front, plus 20 percent in stock to vest over seven years. On top of that, they offered an asset bonus and two production bonuses, to be paid out over two years. When Phil considered the offer, he realized that moving to a firm with a “world class” platform, a better payout and a more supportive manager would allow him to make up for the remaining non-vested deferred compensation in matter of months. He is now comfortably situated at the new firm, building his book and gathering new assets.
As the race for top talent intensifies, the “golden handcuffs” will only get tighter. Many brokerage firms are requiring their advisors to wait for a longer period of time in order to “earn” their deferred comp. But if you are waiting around for your deferred comp to vest, and your business suffers in the interim, you could lose out on a smart and lucrative recruiting opportunity. There are certain windows in an advisor's career when it makes the most sense to move. If you wait too long, the market may pass you by.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting www.diamondrecruiter.com