This is the fourth part of an ongoing series written by Steven Insel for advisers evaluating recruiting packages, retention packages, plans to set up their own fee-only advisory firms or even the possibility of joining and independent broker-dealer and/or advisory firm.

In my earlier installments in this series, I explained certain critical issues to be considered when deciding whether to change firms and certain critical contract terms to consider in recruiting or retention packages.

The priority message, though, is that advisors need to follow a disciplined process with the objective of making the most informed decision possible. There is no one right answer or one right firm for everybody. What has driven this point home to me has been seeing my clients join so many different firms, decide to stay put, or even choose to set up their own firms after going through this process.

Previous articles in this series discussed some of the potential risks of any move and some of the most common and critical economic and contract terms. But in any decision, there is the broad expanse of issues that may be more specific to you as an individual or team. Some of the most frustrating calls I receive are from advisers who moved firms without proper guidance or knowledge of these factors, and now it is too late.

There is no “one list” for everyone. You need to think of how you do what you do every day, and you can never assume because our firm does things a certain way that it is the same at every firm.

The people who are recruiting you may be good people, but they are selling; they are not naturally going to point out problems. You need to verify everything critical in writing with properly authorized persons, and you must understand every document you will sign or sign; many things can be buried in stock plans, employment manuals, contracts they might not show you until you arrive, etc. If something is sufficiently critical, it needs to be an enforceable contract term.

Consider these examples.

(1) You arrive at a firm and find out that you cannot keep a significant number of accounts because: There is overlapping coverage and the other adviser trumps your political capital; compliance will not allow certain accounts such as non-domestic clients; there are geographic restrictions you did not know about; certain types of accounts are deemed ‘middle market’ and not allowed to be handled by advisers in your division.

(2) You think you are entitled to certain additional benefits under your contract when you meet certain asset or revenue hurdles. Only later do you realize that the capitalized terms in the contract do not include many items you thought were valid revenues or assets.

(3) You assumed you would have certain staff support, certain expense allowance, certain data bases, certain equipment … But when you arrive, it is not there or it must be acquired is at your expense.

(4) You arrive and find out clients will not move their accounts, because the pricing on critical products or services is not competitive due to debt, collars, advisory programs, etc. If you discount the advisory fees as you might do for many clients, you are surprised to find out it comes 100% out of your payout. The branch manager said it would be done, but the third-party investment manager your clients love is not on the platform when you get there, or when the manager is signed up on a ‘one off’ agreement the payout is greatly reduced from the norm. Compliance will not let you send out that newsletter, sponsor that golf tournament, handle that account custodied at an outside trust bank.

(5) Your firm is sold or merging, so you decide you will take a retention package and stay. It is not quite as much in dollar terms as you might get in a recruiting package, but there is the loyalty factor: You may love the manager and staff you work with, and you avoid the hassles and uncertainty of a move.

But three months later the manager you love is fired, the staff you love has left or been terminated, the service and platform has deteriorated as the inevitable firings and loss of morale occur, and confusion in eliminating and combining systems and operational fiefdoms reign chaos on your daily life. Next, your payout is cut.

What’s Next?

You may want to leave in any of these circumstances. But in addition to the horror of another move, you also find out that the documents you signed have provisions that make it very difficult to move. And in the meantime, maybe the economic or political environment has wiped out the generous recruiting packages, so now you may forfeit the package you received and have lost the opportunity for the packages you could have taken.

You need to do the due diligence and obtain the information about all your alternatives before you face a deadline on a retention package, and then make the best and most informed decision possible in this very difficult and unpredictable environment.

This decision must be based on your own unique needs and risk tolerance. If you are considering a retention package, it may require that top advisers organize to negotiate the terms. And you may not know the facts until the last minute. When we negotiated over the Merrill retention package, for instance, concessions were made only at the end of the process.

You may be someone who is not a huge producer. Thus, retention packages may be much smaller as a percentage of revenues or non-existent as an adviser’s annual trailing revenues fall below a certain level.

The highest packages are generally for those doing $2 million to $3 million dollars in yearly revenues, falling to lower levels for smaller producers, and getting even smaller or gone entirely for those doing $500,000 or less.

But, this simply makes it more important to consider your options. At some firms recruiting packages do not fall off nearly as much at lower revenues, if at all.

And you may want to consider the independent firms, some of which will pay some recruiting incentive, in addition to offering much higher payouts to independent contractors that pay their own expenses. Also, there are large branches of independent-contractor firms run by entrepreneurs who are recruiting advisers to join their organizations.

Advisers at any level may believe it’s time to set out on their own or with colleagues to establish their own advisory firms, without conflicts, with more control of their lives and the satisfaction of building something they believe is right for the clients and that also should provide them with a nice capital gain someday when they are ready to sell. There are many service providers and incredible technology that make such an option much easier than in the past, but such choices entail many other legal considerations to be discussed in a future piece.


Attorney Steven Insel has represented hundreds of the top U.S. financial advisers in such matters for decades; questions can be sent to him at