How to explain your transition package to clients

Apr 4, 2014 @ 12:01 am

By Tom Daley

+ Zoom
It seems Finra is getting closer to requiring advisers with transition packages exceeding $100,000 to disclose the compensation to their clients.

After working with thousands of reps over the years, I don't believe this new regulation will deter unhappy financial advisers from moving to firms offering more opportunities for growth.

The rule will simply require conversations explaining the motives behind the moves. There's no reason why these conversations have to be uncomfortable or contentious. Not moving to monetize, but to grow

Most advisers are not moving to simply net lucrative transition deals in order to monetize their practices or their personal lives. (If they are, these client conversations will be more difficult and may uncover a conflict of interest — to Finra's point.)

Most advisers are switching firm affiliations to create long-term growth for a variety of reasons:

-Freedom to offer alternate products
-Improved, integrated technology
-Increased back office support
-Streamlined compliance
-Ability to focus more time on clients
-Conducive culture fostering growth

It may also be helpful to explain how the new affiliation will solve current pain points.
Using Transition Compensation to Facilitate the Move
Most clients don't understand advisor compensation, much less the costs incurred when changing firms.
Outlining how transition packages ease the burdens associated with moving as well compensate for any short-term losses of production and income will make sense to most clients.
Make sure clients understand the structure of the transition compensation—typically a combination of upfront bonuses, stock options, deferred compensation, forgiveable and non-forgiveable loans. Most clients will assume the payout is simply in the form of upfront money, which tends to raise red flags.
This Move Will Benefit Clients
Advisors should be prepared to give tailored examples of how the change will generate increased value to clients.
Will alternative investments now be offered? Will integrated technology allow for more improved reporting? Will more back office support mean more time spent interfacing with clients and their portfolios?
More Money Isn't a Bad Thing
Richard Bryant, Co-Founder and CEO of Capital Investment Companies as well as a member of FINRA's Independent Dealer/Insurance Affiliate Committee had an interesting point I've been sharing with others. He says advisors move for a variety of reasons and even if money is part of the consideration, that doesn't necessarily make it bad for the investor. This is especially true if the move also means the advisor can better serve the client. Read More
In addition, being recruited and compensated to join a new firm can be seen as a sign of respect, validating the advisor's talent and encouraging client loyalty.
Bottomline: If you are moving because it's better for you and your clients, the conversation will be just one of many in a fruitful, long-term relationship

Tom Daley is the founder and CEO of The Advisor Center, a strategic partner to InvestmentNews.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Featured video

Events

How to build a better business plan

Financial advisers are good at a lot of things, but business planning isn't always one of them. Why is that and how can they improve? Teri Shepherd of Carson Group offers some solutions.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

Morgan Stanley sees slower fee-based asset flows on fiduciary rule delay

Flows to advisory accounts, while still higher than the start of 2016, dropped off more than 20% from Q2 and were the lowest in a year.

How adviser salaries stack up to other jobs

Median compensation hovers just under $100,000 on the low end and reaches nearly $300,000 for bosses.

Finra ranking brokers in effort to crack down on industry's bad apples

All 634.403 reps have been ranked based on factors such as prior regulatory disclosures, disciplinary actions and employment history.

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.

Advice firms in a tricky financial position

As revenue growth dips and salaries rise, nearly 90% of firms are at or near capacity.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print