You have decided to move on. So how are you going to protect yourself and this business you've spent your life building? And how are you going to score the best deal?
First of all, target your efforts to a firm that is going to meet your personal and financial needs. If you're seeking greater independence, don't look for a deal at a wirehouse. If you want the biggest deal, don't bother interviewing at an RIA. Different firms offer different value propositions. You need to be realistic about what you want, what you offer and what will make or break your long-term career satisfaction.
Negotiate only with the firms that offer you the solution for which you are looking and realize that one firm won't offer everything you want. Everyone would love to have an 80% payout, a 300% deal, 2-on-1 sales assistant coverage, freedom from bureaucracy and private stock. I'd like to be 6'2" and have all of my hair back. None of this is happening anytime soon.
The Interview Rules
Once you have narrowed down your choice to the firm or firms that have a model that is right for you, both you and your prospective employer (PE) can begin a detailed due diligence process. Very early in your interviewing process, the PE will ask you to sign a form that enables it to legally check your compliance, criminal and credit histories.
Before you sign, you should check your record on FINRA BrokerCheck. Any complaint that a client has filed against you, regardless of the outcome, is on your record. Your signature enables the PE to get more details directly from FINRA about those complaints. The PE will ask you for a written paragraph explaining what happened. It will ask you for the official response that you wrote for your firm at the time of the complaint. The more transparent you make your history, the more comfortable the PE will be.
One big producer who I worked with has two complaints on his record that were filed during the tech crisis. Both were settled for a fraction of the original complaint requests. The official paperwork read: "The complaints were without merit and were settled to avoid the cost of litigation." When asked what he would have done differently, the big producer told the PE that as a young advisor, he did a poor job of communicating with his clients when the markets were in turmoil.
"I was immature," he told the PE. "I was much more accessible and proactive during the 2008 financial crisis." His mea culpa makes him a more attractive candidate. Interview rule one: Disclosure engenders trust.
On that theme, if you were arrested for marijuana possession when you were 18 or stole a pack of gum when you were 21, you have the big, bold word CRIMINAL on your FINRA BrokerCheck profile page. You should not be surprised that the PE will find out about it, or ask about it, since your current firm did the same thing before it hired you. So tell your PE about your youthful indiscretion ahead of time. Interview rule two: Disclosure engenders trust.
That brings us to your PE's biggest nightmare. It goes like this: The PE is sitting in front of an arbitration panel defending an advisor that it just found out has a history of personal financial problems. If you have had issues with your financial past, be transparent about the causes and what you did to fix the problems. Interview rule three: (You know the drill).
You not only need to make your personal life and history transparent, you also need to make your business transparent. Broker recruiting Protocol prohibits you from providing the PE with identifying information about specific clients, but you still need to ensure that the PE is a fit for your clients.
There is a direct correlation between the PE's willingness to increase its deal and the extent that it is comfortable and confident that your business is portable, profitable and, most importantly, clean. Do your clients have any kind of special pricing, loans or reporting? By doing your homework and your own due diligence, you are proving to the PE that you care about the outcome of the transition and not just the deal. You are also learning the ways in which your PE is superior to your current firm so that you will be better prepared to sell it to your clients after you move.
When it comes to negotiating your deal, you have two very powerful negotiating tactics at your disposal. The first is the ability to walk away. The new firm should be a fit for your business, and it should improve the lives of your shareholders (family) and your clients. You should be able to disclose the terms of the deal to your clients with pride. Your skills and your business are valuable to a new employer and you take a risk in moving. The move compensates you for the risk. Clients will understand.
Assume that your former "friends" at your previous employer will be relentless in telling your clients that a big fat check was the only reason why you moved. If you can't talk about your move to your clients in a compelling way, then walk away from the deal.
The second tactic is the financial ask. If the PE knows that a win/hire is near, it will try its best to accommodate your final request. Use this tool carefully: Are you asking for something that is possible? If the PE says no, will you be able to walk away? You want to get as much as possible, your PE wants to pay as little as possible, but you both need to be happy over nine years (the length of the typical deal). Be prepared to compromise.
Write It Down
Get the deal in writing. Have an attorney look at it and understand the specific terms. Is there a difference between what you get in writing and what you were told verbally? Sometimes this happens due to a misunderstanding, but sometimes it is plain old obfuscation.
As your attorney will explain to you, the offer letter is NOT an employment contract. You will remain an "at will" employee who may leave at any time (you have to give the money back) and can get fired at any time for any reason (you will also have to give the money back). Some contracts have clauses that require a certain level of performance in order to have the loan "forgiven." Different contracts place different obligations on your family upon your disability or death. For the legal issues, have your attorney negotiate directly with the PE's attorneys. Do not do it yourself.
Imagine your daily life as an advisor and negotiate ALL aspects of that life ahead of time while you still have some leverageand realize you will never have as much leverage as when your PE is wooing you. You will also need to negotiate your sales assistant support. If you are a significant producer, you probably have your own assistant and you will be negotiating on his or her behalf.
Is your practice growing quickly? At what level of production will you be able to get even more support? What kind of travel do you normally do to visit clients over the course of a typical year? During the transition, you probably will travel even more. Have you done your homework on the PE's technology compared to your own? Do you have a Bloomberg terminal now and will you need it at the new firm?
Get absolutely everything that you have agreed on in writing. The financial terms will come in the form of the aforementioned contract, but the office items will be in a memo. In the wirehouses, the odds are small that the manager who you are negotiating with today will be the same manager who you are reporting to by the end of the agreement. If he or she is not willing to write it down and sign it, then you should walk away.
Okay, you have a great deal. The prospective employer is soon to be your employer. You can picture the dollars in your account and your new corner office. All that stands in your way is a smooth transition. In my next column, I'll explore how to transition your book to your new destination successfully and smoothly and how to deal with your old employer.
Danny Sarch is president of Leitner Sarch Consultants (leitnersarch.com),
a boutique search firm specializing in the wealth management industry.