Don't sell your soul for a large transition package

Advisers should carefully scrutinize the package they're offered for moving their practice to a new firm.

Feb 14, 2018 @ 4:26 pm

By Trent Gain

In the 16th century book, Faust sells his soul to the devil, Mephistopheles, in exchange for 24 hours of tutelage in black magic. It was a decision he would later regret.

As a financial adviser in today's world, you may be "tempted" with very attractive offers to move your practice from your current home to another firm. But before accepting any offers, consider the following so you may avoid the fate of Faust.

Know Exactly What You Want

Periodically, it is prudent to investigate other options to determine whether your current firm is still the best fit for your practice or whether changing firms would be beneficial to achieving your long-term vision. As you begin your due diligence of prospective firms, you will want to list every aspect important to you that addresses the specific needs of your practice – your wish list.

Naturally some firms will organically be a better fit for your practice than others, either from a cultural or infrastructure perspective. But they may not have everything on your list. It's like searching for a spouse or significant other: No one is perfect, no firm is perfect. But there is a perfect firm for you.

Focus on Firm's Fundamentals

Once a firm knows you are considering a change, they will break out the dog and pony show to demonstrate why they are the obvious choice, as they should. Just as we are eager to earn the business of a highly desirable client, so too is the prospective firm. You are their potential client.

This process is about your agenda, not theirs. Remain focused on gathering the information you are looking for and need to make an informed decision. Some specifics you should be sure to investigate thoroughly include:

• Ownership structure: publicly or privately held?

• Size of the firm: Is it big enough to acquire other firms or be acquired?

• Compliance track record: Any regulatory issues? Fines?

• Proprietary mandates: Will you be expected to sell any proprietary product?

Getting answers to these questions is essential to understanding the firm's financial and structural stability and can lend insight into the firm's future.

Transition Assistance Offers

Part of the courtship process to convince you to move to the new firm is the transition assistance offer. These packages are designed not only to help offset costs and the possible revenue loss you may incur by moving your practice to the new firm, but also to further entice you to join the firm.

But be cautious.

While this is not an attempt to dissuade you from accepting a significant offer per se, it is an effort to point out the need to carefully scrutinize any such offers carefully. A generous offer can put blinders on the best of us, but it can also come with a price. So, it is imperative you look at each element of the offer thoroughly to ensure you understand its ramifications should you accept.

Areas to evaluate carefully in an offer letter would be:

• Monetary support: What are the terms of conditions for receiving support?

• Payout: Is it competitive? If a high payout, how long would it take the firm to "break even" given any monetary support provided? This speaks to the financial solvency of the firm.

• Covering fixed costs associated with the firm: How much is covered? For how long?

Again, this is not to suggest you shouldn't accept an offer that contains any of the items mentioned above. Not at all. What is being suggested is the need for any adviser who is going through this process to understand and investigate every nuance of any offer letter so as to avoid making a "Faustian bargain."

(More: As Merrill Lynch and Morgan Stanley cut back, what's next for recruiting deals?)

Trent Gain is chief operating officer of The Independent Grid, a turnkey, adviser-centric platform that provides back-office operational, marketing and compliance solutions to financial advisers. Follow him at @trgain22.


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