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How to explain your transition package to clients

Apr 4, 2014 @ 12:01 am

By Tom Daley

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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.

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