Following Wednesday’s announcement that Ladenburg Thalmann Financial Services (AMEX: LTS) would be buying Securities America, the details of the firm’s retention packages to SAI’s 1,700 reps are still up in the air, but sources say the firm is handing out retention packages on a case-by-case basis, with a higher bonus for those with higher production. In one scenario, an $800,000 producer is getting 15 percent of his trailing 12-months production in stock and cash; Ladenburg told him this was the highest it was handing out, according to a recruiter, who asked that his name not be printed.
The recruiter, who spoke with the FA in question on Thursday, said the advisor would be getting 75 percent of the bonus in cash, and the rest in Ladenburg stock, vested at 25 percent per year. It’s forgivable over a four-year period, and he’ll get half the cash now and the other half when the deal closes.
“Advisors will be offered competitive retention bonuses based on criteria including production, profitability and business growth,” said a Ladenburg Thalmann spokesman, who declined to comment further.
In other words, many FAs could be getting lower than 15 percent. The recruiter said the 15 percent figure for higher producers could’ve been higher, but it’s not insulting. It’s probably just high enough to keep people in their seats. (Back in late June, Registered Rep. was the first to write about Ladenburg as a potential buyer of Securities America.)
Chip Roame, managing partner of Tiburon Strategic Advisors in Tiburon, Calif., said 15 percent seems low, but that it was a generous move to provide 75 percent in cash and half of the cash up front.
Scott Montgomery, senior vice president of business development at FirstPoint Partners, a boutique consulting and recruiting firm, said similar retention deals have ranged from 5 to 15 percent. The four-year time period also seems typical, he said, because the firm wants to keep advisors in their seats for a while.
Factors
In determining each reps’ package, Ladenburg is looking at many different factors, including tenure, product mix and production size, said Jon Henschen, a recruiter with Henschen & Associates. Also, those with more fee-based business will get more than those who run are transactional businesses.
Philip Palaveev, president of Fusion Advisor Network, said the firm will likely base the packages off of their sources of profitability. For example, those with assets on the corporate RIA are more profitable, and will likely receive more of a bonus. If a rep trades more frequently, they’ll also likely get a higher bonus. The firm will also look at the reps’ sponsor partners, such as mutual fund companies, and what kind of marketing fees they draw in there.
Will It Make a Difference?
Regardless of what the actual retention bonus will be, this is not the major decision point for a lot of advisors, said Montgomery. He believes those who have already decided to leave, will leave no matter what, while those who were leaning towards staying, will likely stay.
Dennis Shore of Dennis Shore Financial Group in Boca Raton, Fla., an affiliate of SAI, said retention bonus is not the most important factor on whether he stays or not. The optimum solution for him is for things to stay the same, with no disruption to his clients. “There’s enough disruption going on with the markets.” Shore, who’s been with the firm for 18 years, said he’s taking a wait-and-see approach.
“Securities America though is staying essentially as is, with same leadership, so likely this is enough,” said Roame, about the 15 percent figure. “I think that is a nice gift but a $1 million producer will still move if he thinks the new firm Ladenburg Thalmann is a bad fit.”
Palaveev said recruiting and retention bonuses are relatively new territory for independent broker/dealers because it runs contrary to their culture. The culture of IBDs is one where advisors own and control the business, so they don’t have any long-term ties to their b/d. Historically, advisors haven’t received much in acquisitions, he said.
But this acquisition is different. “This is probably the largest IBD that’s been acquired so far,” Palaveev said.
LPL Financial (NASDAQ: LPLA) set the tone early on in the process by not bidding on Securities America, Palaveev added. Instead, LPL decided to recruit some of the firm’s top producers, offering top SAI advisor recruiting bonuses as high as 25 to 40 percent, Palaveev said. Next to that, 15 percent seems low. But you also have to take into account the trouble and costs incurred in transitioning to a new b/d and having to re-paper your clients.
At the end of the day, however, the retention bonus is not going to change anyone’s mind on whether SAI is a good fit for them, Palaveev said. “It will be about what’s the best place to build a practice.”