It is hard to believe that it has been two-and-a-half years since the inaugural Career Moves column, entitled “Of Myths and Moving,” was published in the September 2004 issue of Registered Rep. So much has happened in the brokerage industry since that time — consolidation, management shuffles, recruiting wars and record transition offers. Therefore, I think it's time to revisit this topic. With big firms gobbling up little ones and transition packages potentially at their peak, dispelling these myths may be more important than ever.
Myth 1:
“I should wait to make a move because the deals will only get bigger.”
Over the last few years the breadth and scope of the deals that firms are offering brokers to switch have grown, from a former high of 100 percent of trailing 12-month production to 150 percent to 200 percent and beyond. And deals often include reimbursement for nonvested deferred compensation. The amount being paid to advisors today was unheard of just two or three years ago. Advisors who have stayed put during this period may tell themselves that they will be better off if they continue to wait so they can collect when the money gets even better.
While no one can predict whether the kind of transition packages being offered will grow, level off or decrease, one thing is certain: It is taking firms far longer to achieve break-even with a recruited broker because the sum of money they are paying to recruit has gotten so large. The word on the Street is that even if the deal amounts do not decrease, the length of the promissory notes offered in transition packages will certainly increase. Currently, when an advisor is given front money to move to a new firm, it is in the form of a note that is forgivable over a period of five to seven years. For every year that a broker remains with the firm, a concomitant percentage of the “loan” is forgiven. If the advisor leaves before the note has been fully “paid” back to the firm, he or she owes the firm the remaining balance. If repayment time increases to nine or 10 years (as has been rumored), then an advisor will be compelled to remain with that firm for a longer period of time to take full advantage of the terms of his transition package. And that represents a discount. So if you're waiting for fatter recruiting packages, don't.
Myth 2:
“I have been with this firm my whole career. Loyalty pays; I should retire here”
It is somewhat startling to hear this rejoinder from an advisor who is entrusted to manage millions of dollars in retirement money for his clients. It has often been written in this column that it is sound advice for every broker to make at least one well-timed move in his career. For example, a broker with a clean U4, $100 million in client assets and $1 million in production — a big portion of which is fee-based business — could be eligible to receive a transition package worth almost twice his trailing 12-month production. If we assume that he stays with the new firm for the balance of his career, by retirement time he will be positioned to transition his book of business to a younger producer — who, incidentally, may get financing from the firm to pay for it. In essence then, this advisor would have monetized his book of business twice.
Bill is a successful financial advisor who has been with his wirehouse firm for over 20 years, and he's beginning to think about retirement. But when Bill approached his firm about grooming a junior associate to eventually take over his book, he was met with resistance. So, he was pleasantly surprised to discover that another wirehouse will more than cover a large amount of unvested deferred compensation that is tied up at his current firm, and will even facilitate making his colleague a partner by underwriting a large portion of the future transition of his book. He plans on moving to the new firm by the beginning of the summer.
Myth 3:
“I'll get sued by my current firm if I jump ship.”
Not if you're moving between “protocol” firms. Signed by Morgan Stanley, Merrill Lynch, UBS, Smith Barney, Raymond James and Wachovia Securities, the protocol prevents participating firms from suing a departing broker — even when he takes certain client information with him — as long as he is moving to another signatory firm. According to the agreement, the advisor is permitted to take his clients' names, phone numbers, addresses, email addresses and account titles and to contact the clients about his change in firms once he has landed. As long as an advisor follows the guidelines, uses common sense and good judgment, the transition to a new firm can be seamless. Even if a broker looks to join a non-protocol firm, the industry has made huge strides in avoiding costly litigations when the parties follow standards similar to those outlined in the protocol.
Myth 4:
“I know my firm is going to be bought, but I'll get retention money, so I should stay.”
Recent experience suggests otherwise: Just look at Advest, Piper Jaffray and Legg Mason, which were acquired by Merrill Lynch, UBS and Citigroup, respectively. Brokers from the acquired firms who stuck around got mostly disappointing retention packages that couldn't compare to what they might have received had they jumped ship after the corresponding deals were announced.
Even if the retention money is better than you hoped, it may not be worth the upheaval and cultural change you'll experience under new management. Make sure you know what you're getting into and listen to what your new management says, or doesn't say, about how your old firm will fit in. As a broker, you have a valuable asset in your book of business. It is your right to be the master of your own destiny. If you are going work for a new firm, the choice should be yours and yours alone.
The thought of changing firms is a big step for anyone. But don't let cloudy thinking get in your way. Make sure you stop paying heed to old Wall Street myths. Don't fear change. Embrace it.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting www.diamondrecruiter.com
