Every day, on the phone or around a bar, whether in hushed or loud tones, advisors ask me: "What can I get?"

Of course, I am referring to the inducement given as cash paid to a financial advisor within the first month of joining a new firm. It's sometimes called a forgivable loan, or an employee forgivable loan, or a signing bonus. In the war for talent, it's the most obvious incentive to entice advisors to switch firms. Misconceptions abound, so I will attempt to demystify this transaction.

The first problem in learning about these deals is to realize that advisors are as truthful about their deals as teenage boys are about their sexual exploits.

If it's a "cash bonus," why is it also called a loan?

The cash inducement to change jobs is tied to a promissory note, which is forgiven over a number of years, in equal increments on the anniversary of the advisor's start date. This is the way that the hiring firm ties an advisor to it. If you want to keep the money, then you have to stay employed long enough to have the note forgiven. If an advisor leaves beforehand, then the firm will demand that the note be paid back.

How are taxes handled?

The money is taxed as ordinary income over the length of the contract. For example, if the advisor signs a seven-year contract, then the deal is taxed one-seventh per year. Say Bullmarket Joe gets an upfront check of $1.4 million dollars tied to a seven-year contract; he would pay taxes at the rate of $200,000 per year. Some firms take the money out of the advisor's paycheck each month, and some will simply add the appropriate number to the advisor's W-2 in the year the deal is forgiven.

So I keep just a portion of the money, since the government will take its cut, right?

Yes, you have to pay taxes on it. But a prudent advisor can mitigate the tax bite. If Joe invests his entire $1.4 million in tax-free municipals, he should be able to earn at least 4% of the entire amount each year. That would generate, in this example, $56,000 of tax-free income each year. If he owes $80,000 on his $200,000-per-year bonus, he is absorbing a big chunk of what he would otherwise have to pay Uncle Sam.

I've heard the term imputed interest. What is it, and how does that hit me?

The government is not fooled into thinking that these transactions are true loans, since they are forgiven over time and are not being paid back to the lender. So the interest that you would have paid for a standard loan is considered income with one of these forgivable loans. There is an additional tax bite owed by the advisor on the entire principal each year, which is reduced as that portion of the loan is forgiven.

What will I have to show to my prospective employer to get this type of deal?

You will need to show proof of your trailing 12-months gross production and of your assets under management and documentation of your business mix. You also will often be asked to fill out a questionnaire about your business, which is quite detailed. You will have your credit, compliance and criminal records checked. Any "blemishes" must be explained in writing, from the limited partnership complaint from 20 years ago to the shoplifting charge when you were 18. To confirm your production record, you'll also need to provide a recent pay stub or W-2.

Are there production stipulations built into the contracts?

This used to be standard, but is now less common. When I have seen it done recently, the requirements are never strict enough to scare the advisor from moving. Bottom line, if you don't think you can move 75% of your book, then you should not change jobs.

What about the deal's back-end parts?

Most of the deals done today have asset requirements to receive additional payments, usually in stock, but sometimes in cash, that are left out of the upfront portions. These back-ends add to the confusion in the marketplace because advisors, when bragging about their offers, count the entire package as if it were all paid up front without any requirements. Of course, that's not so.

If I'm a big producer, can I expect the same offer from all the firms I talk to?