To Score Eye-Popping Offers, Brokers Need the Right Business Mix and a Little Chutzpah, Recruiters Say
As the recruiting wars intensify, seasoned advisors have opportunities to entertain multiple offers and engage in horse-trading to try and inflate signing bonuses, recruiters say.
Most of the time, those head-turning deals are only going to the top “quintile” of producers, and often sub-$1 million producers need not apply, recruiters say (although Wells’ cutoff is $500,000). Firms also may shell out more for a book with customers who skew younger or have higher average balances per household, according to Danny Sarch, a recruiter in White Plains, New York.
They also evaluate advisors’ prior rate of revenue growth and future plans to grow revenues, and give preference to advisors who can express their investment philosophy in a way that shows a “thoughtful methodology,” Sarch said.
Firms also offer premiums for advisors who generate the bulk of their revenues through advisory fees, rather than transactions, according to Bill Willis, an industry recruiter in Palos Verdes Estates, California.
“Almost everyone is willing to pay the most attractive prices for fee-based business, simply because the income is more predictable,” Willis said. “The client ownership when the client is paying a fee for advice is perceived to be significantly stickier than if it’s just a transactional relationship,” he added.
Bank-owned firms are also eager for cash that they can use to earn deposits and to bring over customer loans, which can pay them in non-compensable revenue that doesn’t have to be shared with the advisor, recruiters said.
“With the deals pressing the ceiling that they’re pressing, people are more focused on that metric,” Willis said. “The bigger the check, the higher the risk, the deeper the examination,” for predictable future revenue, he added.
Firms hope to forecast the book’s future growth rate by looking at the client mix—a niche focus on dentists, for example, can help, according to Louis Diamond, a recruiter in Morristown, New Jersey. An advisor who has a relatively shorter length of service but is adding clients at an accelerated rate can be packaged as “a rising star,” and ascend to a higher quintile for negotiating purposes, Diamond said.
Conversely, firms discount offers for a compliance record with lots of red marks on BrokerCheck, Sarch said. A sketchy or expelled firm as a prior employer may also drag down advisors’ price tags.
Too many former employers on their record can make advisors appear to be “hoppers,” and bring their value down because firms expect they’re likely to jump again, Sarch said. Sometimes, a firm will offer bigger deals to advisors coming from firms that are their intense rivals, but that typically plays out on a regional level, Sarch and other recruiters have said.
To be sure, headhunters also note a caveat that before advisors are transfixed by the number and size of the deals, they should evaluate what they are really seeking to fix with a change and make sure they’re not just running from a problem or into a dead end.
“Our policy has always been, we don’t know the exact right firm for the candidate, so we put the candidate usually in front of multiple firms based upon the type of business they are doing, the culture that they’re looking for, and the management team they want to work for,” said Richard Kronman, a Malibu, California-based recruiter at Kronman, Matthew & Associates.
Advisors also should pay attention to the length of their commitment to the new firm, since wirehouses have and may in the future reduce the grid payouts, shrinking advisor compensation, Sarch said. Those who are locked in with a large promissory note that takes many years to pay off have no recourse under those circumstances unless they were careful not to spend their upfront money, he added.
As an initial step, when Sarch starts helping advisors, he asks them to identify and examine their own motivations for moving: What do they want to fix?
“Sometimes, it’s purely short-term money they need,” Sarch said. “I’m not making a judgment and I’m not naïve. That happens.”
In those instances, Sarch added, the focus on the deal size and less on which firm, and often, for wirehouse advisors, those objectives will likely lead them to choosing another wirehouse.
But once you’ve gotten down the road with a few strong candidates and have your general bonus range in sight, the rest can be negotiated, recruiters say.
“There’s no doubt that playing firms against each other is effective,” Sarch said.
Kronman says the key to nudging one firm higher may be in subtlety.
“I won’t divulge what the offers are from one firm to another,” Kronman said. “But they will come back to me and ask if the candidate is interviewing with other firms, and I’ll be forthright with them and say, ‘Yes.’”
Still, advisors and the recruiters should not overplay the horse-trading, Sarch said. If they make a counteroffer, and the firm meets it, the advisor is obliged to accept the deal, Sarch said. “Your word is on the line,” he said.