Selling your book twice over

Switching firms 10 years before you expect to leave the industry can provide an extra windfall – if done correctly

Mar 12, 2014 @ 9:32 am

By Mason Braswell

As the average age of the adviser force continues to tick up over 50, firms are getting competitive to try and lure advisers on their way out of the industry.

Many wirehouses and independent firms are sweetening their buyout deals and making it easier to enter their succession programs. On top of already lofty upfront recruiting deals, more and more top-producing advisers are considering making a transition as part of their retirement plan.

“You add those things up and it's a pretty compelling story,” said David Grau Jr., president and chief executive of the Succession Resource Group. “You can almost sell twice.”

Recruitment deals for top producers at some of the wirehouses can reach up to 200% or 300% of trailing-12-month revenue paid out as an upfront or back-end bonus.

In addition, most of the same firms offer succession plans that buy out an adviser's book of business for anywhere between 60% and 200% of trailing-12 production. That sum is usually paid out over a period of several years after retirement. The total amount an adviser receives depends on factors such as how long the adviser has been at the firm and the size of the book of business.

On the independent side, firms such as Steward Partners Global Advisory, an independent firm affiliated with Raymond James Financial Services Inc., are cropping up to offer deals that compete with those larger firms. In addition to offering equity and upfront money, Steward advertises perks such as full medical coverage for up to seven years after retirement.

“It is definitely becoming a more attractive option and getting more serious, considering the people who would've just otherwise left” the same firm, Mr. Grau said.

Moving is not for everyone, however, and advisers should be aware of a few caveats before they jump ship. The hassles may not even be worth it for advisers who are less than 10 years away from retirement, Mr. Grau cautioned.

“At age 60, that's not in the cards,” Mr. Grau said. “Who wants to end the last 10 years of their career with a broker-dealer change?”

For advisers who consider the move, one of the first concerns is whether it makes sense for clients and whether clients will follow.

“As nice as it may be to get a $500,000 check or something like that, they're wondering if the book is going to be decimated,” said Rich Schwarzkopf, president of Schwarzkopf Recruiting Services. “And the firm you're leaving is going to go after those clients with a vengeance.”

Moreover, many of the succession plans at the larger firms are designed to provide the highest reward to those who have been at the firm the longest. Leaving a firm prematurely can be a trade-off. Some length-of-service bonuses, such as UBS Wealth Management Americas', for example, do not kick in for 10 years.

Many firms, such as Morgan Stanley, require the adviser to have been at the firm for at least three years before participating in its formal succession program.

At the same time, many large recruiting deals also require the broker to be at the firm at least nine years before the upfront loans are forgiven.

“I've seen too many advisers that took the move-over bonus and it was a bad fit,” Mr. Grau said. “And it was a long nine years.”

But for those advisers who are willing to make the jump, changing firms can afford other opportunities aside from a check.

Most advisers should already be thinking about their retirement plan by 55, and as part of that, they can begin to segment clients and pass off some clients to more junior partners. Moving firms can be an opportunity to help pare down a client base to the larger or longer-term relationships, Mr. Grau said.

“A broker-dealer change like that is certainly a really good chance to put to the test the relationships and to cull your book of business,” he said. “In the last third of their career, advisers find legacy clients you had when you were 25 or 30 and you retained them even though sometimes you shouldn't.”

“Not that you need a broker-dealer change to do that, but it can be an opportunity,” he added.

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