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Want a Big Paycheck to Switch BDs? Beware the True Price

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How much importance do advisors give to upfront compensation when considering a move from one broker-dealer to another? 

At a time when the data shows that the population of financial advisors is both shrinking and aging, it can be tempting to accept the more lucrative packages that wirehouses, banks and even regional firms are offering to brokers looking to switch firms, particularly given the expenses of starting an independent advisory firm.

But the better the deal, the more onerous the commitment, says Mark Elzweig, president and founder of the executive search firm Mark Elzweig Co.

Elzweig, who participated in a panel discussion titled “Recruiting Deals by Channels” during ThinkAdvisor’s Going Independent virtual conference, said that “the more someone is giving you, the longer they want you to stay so that they can make a more reasonable return on their investment.”

Wirehouses do offer the biggest packages, but focusing just on the size of the signing bonus prevents many advisors from realizing that even though the independent channel may offer less money up front (Elzweig puts it at between 10% and 15%, with some of the larger firms perhaps topping out around 50% to 60%), their deal terms are actually less restrictive.

More importantly, the independent channel offers greater long-term opportunities and rewards for those who really care about growing their own business and seeing it flourish, other experts say.  

Consider that the average drop in production after a move is around 30%. That’s quite a significant amount, and unless an advisor has carefully planned his or her move and made sure they’re doing the best they can to retain a good percentage of their client book, it can be hard to make up the numbers required to meet the terms of a wirehouse or regional firm’s deal, even if these deals offered good money up front, said Jon Henschen, president of Henschen & Associates.

“Advisors too often fixate on transition dollars,” Henschen said, and this impedes them from seeing the bigger picture, that “culture is better than cash.”

Finding a good fit where an advisor can grow the business model they want with the requisite amount of support can actually turn out to be much more lucrative in the long term, Henschen said, even if upfront expenses are high and the initial payout is low.

An ideal advisory business, according to panelist Tom Kindle, vice president at Pershing, is one that relies on the strengths of an empowered team, transferable value and loyal clients, and the way in which they come together to maximize potential.

“You can get pretty close to those fronts at a wirehouse but can you get as close as you’d like?” he said.

In an independent structure, those three facets that are integral to business success are that much more accessible, said Kindle. So while taking a seven-to-nine year package with attractive upfront compensation at a wirehouse or a regional firm might seem like too good a deal to turn down, taking it means making an implicit long-term commitment to a larger firm that may not ultimately prove to be the best decision.

In an independent structure, “you can choose your technology, choose your brand, your office space, your custodian” and so much more, Kindle said. “You have choices with respect to compliance, you have access to tons of investment research; you’re not losing out. There are plenty of firms that, once you go independent, will help you monetize your business.”

Advisors should view a move toward an independent structure as a time of opportunity, Henschen said, a chance for new business possibilities, the uncovering of new assets and an even an opportunity to say goodbye to clients who may have been difficult to manage.

The freedom of choice can yield greater empowerment and the possibility to scale up a really successful and meaningful business, even if the initial days may be a little more painful.


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