Editor's note: This case study is based on an actual client, whose last name has been withheld in the interest of privacy.
ROB is a wirehouse adviser based in the Pacific North-west who has spent a professional lifetime with the same firm.
He was 25 when he joined the wirehouse almost 30 years ago, and he earns a living that has far exceeded his wildest expectations. Over the years, he has largely been content. He has felt a sense of loyalty to his firm because he believes it has brought him a level of credibility and respect that he might not have gained elsewhere.
Today he generates just over $3 million in annual revenue and manages approximately $400 million, mostly for high-net-worth clients. Seventy percent of his business is fee-based, with the balance in mutual funds, structured products and some individual equities.
One morning six months ago, Rob woke up and with a tremendous sense of clarity realized that his firm no longer was the same one he joined. Culturally, things had gone from being entrepreneurial and friendly to being big, bureaucratic and inefficient. Senior leadership had become inaccessible, unreliable and untrustworthy.
Although over the years — especially in the past four — there were always things at work that irritated Rob a bit, the sum total of them never made him question whether he was in the right place. But that changed when the firm revised its retirement plan, reducing its contribution for advisers with more than 30 years of service. The fact that he now had to pay all of his own business development costs also roiled him.
These changes caused Rob to explore other firms to compare and contrast their platforms, compensation plans, retirement programs and cultures in order to determine if he was going to spend the remainder of his career where he was. He was the first to acknowledge, however, that his own fear of change might keep him tethered to his firm in the end.
With more than $800,000 in unvested deferred compensation that he would lose if he were to leave his firm, plus another $800,000 in unforgiven retention money to be paid back, Rob knew that if he were to make a move, it would have to be to a firm that would allow him to monetize his business for significantly more than what he would walk away from.
This fact limited his options to the traditional space (wirehouses, regionals and quasi-independents). Rob also knew that he was not the entrepreneurial type, and he had little appetite for independence. He liked the “plug and play” nature of working for a big firm, as he relied heavily on local management and product specialists. With the help of a recruiter, Rob arranged to meet with the remaining three wirehouses and two regional firms. The five firms were chosen because each met Rob's main criteria:
1. Solid name brand with robust platform, cutting-edge technology, and a fair and appropriate comp plan, including a retirement program.
2. A local presence with a good reputation, quality advisers and experienced local management; accessibility to senior leadership when appropriate.
3. Meaningful transition packages.
4. A value proposition that he could deliver to his clients, assuring them that he was moving for their benefit and would do no harm to them in choosing to leave his firm.
5. A seamless transition.
Rob took meetings with the chosen firms and was prepared to be wowed.
He was sure that he was sufficiently frustrated with his firm, entitled to monetize his business at least once in his career as he had watched so many others do, and that he was ready for a change.
Throughout the span of four months (the time it took Rob to have introductory meetings and then follow up meetings with each firm), he was constantly thinking about how he would position the move to his clients, excited about how he was going to invest the windfall he would get in the form of transition money, and more and more certain that it was time to go. As he went through the process, though, he became increasingly aware that there were imperfections everywhere — not just at his own firm — and that a move would require him to compromise on some of his needs.
With the other wirehouses, Rob was über-impressed with their technology, platform, resources and certainly the transition package they would offer him (330% of his trailing-12-month production, with 140% of it in cash upfront on a nine-year forgivable loan, and five years' worth of back-end bonuses if he first duplicated his current production and then expanded it 1.5 times by the end of year five).
Yet he came away feeling that he might be trading one set of problems for another. While the other firms had not made the same onerous changes to their retirement plans, there was always the possibility that they might in the future. “Would I have the same sense of lack of control over my professional destiny, and would the environment be equally bureaucratic?” he wondered.
At the regional firms, he loved the seeming lack of bureaucracy, the accessibility to leadership at all levels and the smaller adviser forces, but he was disappointed by the large rift between the wirehouse deals and theirs. (Transition packages offered by regional firms tend to vary from one firm to another but typically max out at 200% all-in for an adviser of Rob's size.)
Rob had a tremendous fear of leaving the familiar, yet imperfect, environment he had known for 30 years. He was hoping that at least one of the managers with whom he met would have been able to demonstrate in a tangible way how he would grow faster at their firm, but to his disappointment, he didn't hear anything that made him certain that he could.
His worries about client loyalty and asset portability, the hard work that a move would require, the notion of having to reinvent himself, his ability to replicate the platform and services he was used to providing outweighed the transition package he might have been paid (admittedly, very hard to turn down) and the possibility of spending the rest of his career in an environment that would have been less inflexible.
In the end, inertia was the force more powerful than his frustrations with the status quo. Rob is still with his firm, and until or unless the pain of staying becomes too great to bear, he likely will retire from the same company he joined when he was 25.
Mindy Diamond is president and chief executive of recruiting firm Diamond Consultants LLC.