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.