• Contract Language
  • Termination
  • Vesting and Hurdles
  • Non-Solicit
  • Non-Compete
  • Garden Leave
• Sit Date
• Client Coverage Mapping
• Salary
• Technology Requirements
• Sales Assistant Salaries
• Vacation and Work Flex Time
• Client Fees
• Pay Out Grid
• Deferred Compensation
• Cross Selling Payments
• Syndicate
• Tuition Reimbursement
• Marketing Budget and Support
• Travel & Entertainment Budget
• Titles and Designations
• Personalized Deal Analysis and Comparison

Contract Language

In advance of getting a formal contract from your new firm, you may receive a Letter of Understanding.  This will outline the basics of the employment agreement and will include details of your deal.  In some cases, the LOU may be the contract.  You may not get anything more formal.  Be clear on its use and have an employment attorney review it.

We strongly recommend that you get a contract from your new firm and, like the LOU, have an employment attorney review it.  While contracts are unique to each firm, the negotiated issues remain the same:

Termination – Advisors are concerned that if they are terminated, they will owe the balance of their up-front loan back to the firm.  While this is generally true, you can argue for stricter termination language.  The firm will generally have language stating that you are an employee “at will” and can be terminated for any reason.  Others will state that you can only be terminated for “cause.”  Defining “cause” is where the issues arise.  Naturally, you cannot identify all the reasons that you could be let go but your attorney can draft language around: fraud, losing your licenses, etc.  Not all firms will agree to this language, but you need to understand the implications and decide if you will accept the risk.  Some firms will also state that if you are fired “without cause” your note will automatically vest.  Again, be sure to have an attorney work on this with you.  Contact us if you would like a referral.

Vesting and Hurdles – Vesting refers to the amount of time that a financial instrument takes in order to be awarded to you in total.  Stock generally has a vesting schedule that is non-negotiable, but other financial instruments can be moving targets.  This includes cash, deferred instruments and other internal awards programs that the company has in place to reward and retain Advisors.

Non-Solicit – There may be language stating that you may not solicit your clients or other employees at the firm (your new firm) while employed or for a period of time after you have left the firm.  While this may be your last move, remember that if you have a year long non-solicit clause, you will be prohibited from speaking to your clients for that time and it will negatively impact your ability to move firms in the future.  It also means that you cannot plan a move with your team or SAs while at the firm.  Soliciting employees to leave with you will be a breach of contract.  Be aware of the ramifications if this language stays in your contract; or remove it.

Non-Compete – There also may be language barring you from competing with the firm for a period of time.  This again will impact any future move.  Like the comments under non-solicit, this may be your last move, but be aware of the ramifications of this language on a future job change. One common compromise on this issue is that the clients that you bring to the firm in your first few months become your “property,” and any new clients that come aboard post-employment become subject to the non-compete.

Garden Leave – In an effort to thwart your departure, another bit of language requires you to take time off if you should ever leave the firm.  Called Garden Leave, it essentially forces you to lay fallow for a period of time with the hopes that your clients and contacts will forget who you are.  Minimize this time period or strike it from the contract entirely.

We cannot impress upon you enough the importance of a good employment attorney.  We can suggest experts in this field.  If you would like a referral, contact us.

Sit Date

Setting a sit date is the lynch pin to your negotiations.  It is often used as leverage in getting something you want.  We frequently see teams use the sit date as a means to get a higher deal.  For example, if the firm has given you a verbal deal and you want another 10%, stating: “if we get another 10%, we will be in your office on October 15^th” gives the branch manager a lot of leverage to fight hard to get that 10%.  The sit date is also symbolic in that once you have agreed to join the firm, your manager is now your ally in trying to get you what he can to make you productive and a “good hire.”  Your manager wants to look good too.

The sit date is also critical in that it marks the beginning of the transition planning process.  As soon as you have a date to join the firm, the transition team can plan backwards to prepare for your move.  They will arrange announcements of your hire, put together client transition packages including ACATS, set up your office/desk position, telephone, technology, etc.  All this needs to be coordinated so that you can begin to work on that specific date.

Selecting the sit date should be well thought out.  First, it needs to be close enough to the date that the contract is finalized so that you don’t risk any confidentiality leaks about your move before you go.  You also want to be sure of the holidays and school vacations around that date so that you can plan your client contacts and maximize your ability to reach them and bring them over.  Finally, you will find that once you are mentally checked out of your current firm, it will be hard to “work” for two firms.  From contract issuance to sit date, you want to move quickly so that any new clients can be opened at the new firm and not at the old, then transferred.

Client Coverage Mapping

In the early stages of your evaluation, you will be asked for a breakdown of your client accounts so the firm can get an idea of the average size of your accounts.  In this case you will blank out the names.  As you are close to moving, you will be asked to reveal your largest clients by name and the firm will run them through a comparison against their current client list.  This is a normal process and no one has been fired for providing this information in advance of a move.  If you do not ultimately make the move, the information is protected by the hiring firm.  In the rare instance where there is duplicate coverage, your manager and you will discuss solutions.  Whether it is a revenue share or outright reallocation, you will need to work through this task.  It is important to note that duplicate coverage is generally only an issue for those Advisors working in a Middle Markets environment or those who cover small businesses.

Salary

To sweeten a package, a firm may offer you a salary for a period of time.  Be sure it is a “salary” free and clear of obligations and not a “draw” which is paid against future commissions.  A salary may be a great way to smooth out the early ramp-up of your business.  While the up-front payment is supposed to give you that comfort, a salary will minimize what you spend from that pot and allow for compounding earnings growth.  In a way, adding a salary will add to the value of the up-front amount.

Technology Requirements

Don’t take it for granted that your new firm has the ability to reproduce what you currently have.  Many firms have their own client relationship management systems (CRMS).  They may require that you use their systems to manage prospecting and to underscore that client information belongs to the firm.  Many FAs may use a retail package like ACT! or SalesLogix.  You may be able to request software that is consistent with the manner in which you do business.

If research tools are key to your business, catalogue what you use and see if the firm will replicate it.  Bloomberg, Nexus Lexis, CQG and the like are very expensive and their availability will be dependent on negotiation and how much the firm wants you.  Negotiating to have the firm pay for this may depend on your T12 and your ability to prove its criticality to your business.

Like the CRM systems, risk management software may be proprietary to the firm and your ability to access it will depend on whether it has been shared with the wealth management groups.  Independent firms like Risk Metrix and Advent are very expensive as a one-off purchase but if the firm is already supplying it to others, there may be economies of scale.

Finally, client reporting is likely provided by the firm.  Again, if you are running Advent Geneva or another accounting package, discuss the possibility of your doing so at your new firm.  The same pricing issues stand for this as the other third party software packages.

If you are considering a home office (see below), spec out those technology requirements and include them.  Many firms have remote computing abilities that let you log into your office PC and access all the technology you use at work.  Others may not and therefore you will have to replicate your technology needs at home.  If working from home is of interest, factor in the results of your research and know your options.

Sales Assistant Salaries

Prior to discussing anything with your analysts and assistants please read the section on How and When Do You Tell Your Team.  It is imperative that your plans remain confidential and that you do not violate any non-solicitation clauses in your current contract.  That said, when it is time to discuss your teammates’ packages, remember: 1) you want to bring the entire team and 2) you want them to be incentivized to make the move with you.

Many firms have a separate group that will “hire” the analysts and SAs.  They will initiate the dialogue and they likely have specific pay guidelines where your teammates will have to fall into.  You can certainly pay them more out of your pocket.  When it comes to the move itself, it is customary that any up-front incentive is paid by the Advisor out of his loan.  Check with your tax accountant, but it may be considered a tax deductible expense as it is related to moving firms.  You may also be able to get the firm to pay it to the SA out of your up-front pretax.  Again, it will depend on the firm and their policies and legal position.

Other perquisites for the SAs can be Continuing Education (see below) and guaranteed pay raises.  You know what will motivate each team member so be creative to ensure their motivation to join you.

Vacation and Work Flex Time

This is the best time to think about your lifestyle and plan for changes you want to make now or in the future.  Vacation time is generally awarded (increased) with seniority and longevity.  You may have to negotiate the equivalent time off if your new firm does the same and offers you only the time commensurate with your title with no “time served” credit.

Flex time is an increasingly popular option.  Firms are keenly aware that burnout is a job hazard and are offering shorter work weeks or shorter work days for anyone that has a legitimate reason.  Baby boomers are taking care of aging parents at the same time that they are raising their own families.  If you already have a flex schedule or want to initiate it, have your reasons and show that your performance is (will) not be impacted by that schedule.

To achieve maximum productivity from a flex schedule, you will need to have a home (or vacation home) office fully equipped with your technology needs.  As noted in the technology section above, some firms will have a remote computing feature where you can log in and access all the software and applications that you use at work.  Others will require more locally installed programs.  Know your needs and be prepared to justify them.

Client Fees

As soon as you walk out of the door of your current firm, the manager or his designate will begin calling your clients.  They are prepared to offer steep fee concessions to keep them from following you across the street.  Your new firm is aware of this, so you will need to work out in advance the parameters under which you will be permitted to discount and for what time frames.  Define your approval limits and when you will need branch level approval.  Naturally, you don’t want to have to go outside of the branch for approval, but know what will trigger that requirement.

If you have clients who are paying on a permanent discounted schedule, they will need to be approved in advance.  This will be discussed when you are going through the Client Mapping process.

Pay Out Grid

Most firms have a multifaceted pay out grid.  Pay outs will differ by product that you are selling as well as by how much you are selling.  Many firms aggregate that information and discuss the “average pay out.”  Some firms pay out around 30% on average (Goldman Sachs for one).  Others are higher, 42% is the average at several of the larger firms and the overall trend has been paying Advisors more for fee.  Because you will be building your business from day one at your new firm, ask if you can be paid out at a higher level on the pay out grid until your business grows.

The pay out will greatly impact your deal.  See the sample deals.

Deferred Compensation

Believe it or not, not everyone knows their deferred compensation balances, let alone the details of the plan itself.  Know what has vested and the vesting schedule of the rest.  If possible, move the vested portion.  There are expert employment lawyers who can fight (and win) to have the non-vested portion move with you.  For information, or referrals to these experts, please contact us.

Some firms will make you whole on your deferred comp with their company stock.  They may even replicate the vesting schedule.  Others will roll it up as a “make whole” in the deal.

Cross Selling Payments

Many firms encourage cross selling your clients to other parts of the firm.  If you plan on doing so, identify the departments and negotiate the payments.  Some of those areas include: Investment Banking, Prime Brokerage/Equity Finance, Institutional/Middle Markets etc.  Referral fees can range from a percent of the revenue for a few years (usually a trailing percent, declining each year) to a flat fee; you may be paid quarterly or annually.  Some firms offer a “note to the file”, in other words, a pat on the back for being a team player.  If you plan to cross sell,  know what the payments are for successfully introducing business to other parts of the firm.

Syndicate

If your clients rely on you for new deals, you will need access to syndicate/new deals.  Every firm has an allocation policy and you will: 1) want to know what it is and 2) figure out how to get to the head of the list.  Firms try to formalize deal allocation to avoid systemic favoritism.  It generally starts with the largest institutional clients, then middle market clients, then the individual clients.  Some firms view access to syndicate as a perquisite for good clients.  Some Advisors see it as a way to get more business.  The more you know in advance about how your new firm handles this, the better off you will be when you are there.

Tuition Reimbursement

As noted under Sales Assistant Salaries, an additional benefit to them (or any other person on your team interested in pursuing an advanced degree) is the coverage of tuition.  If someone on your team is accessing, or plans to access, a tuition reimbursement plan, understand how it works and be sure to compare plans.  Gone are the days when the firm will cover all your tuition without strings.  Tuition reimbursement plans can differ in many ways.  Some firms may pay a declining percent of the tuition based on your salary, title, or final grade (an A earns a 90% reimbursement, a C earns a 70% reimbursement).  Additionally, the firm may pay only for courses that are directly beneficial to the career of the individual; art history and flower arranging may not qualify at all.  If any of your teammembers are currently receiving tuition reimbursement, or plan to, this may be a key factor in their willingness to move.

Marketing Budget and Support

For Advisors with large community outreach programs, a marketing budget is important.  Have details of your current marketing budget (whether paid for by your current firm or not) with supporting business growth.  Your new firm will be much more inclined to supplement or pick up expenses when they are proven to produce revenue.  Many firms have a centralized marketing department that will be at your disposal.  Understand the scope of their capabilities and their billing practices.

Your marketing needs will be larger at the beginning of your move.  Work out your marketing plan with your branch manager and justify the need for the firm picking up the expenses.  You will need to notify clients via letter or announcement card (printing, paper and postage); you will be sending out a transfer package to all clients interested in moving (paper, postage); you may want to run an add in the local paper; or hold a dinner or reception for your local clients.  Be thoughtful, creative, and above all, justify the expense with the corresponding revenue to the firm.

Travel & Entertainment Budget

Like the marketing budget, your T&E expenses will be much higher in the first few months in your new position.  Your former firm will be aggressively wooing your clients so you will need to do the same.  You will need to travel to your largest clients and will likely take a teammember and someone from senior management with you.  Dinners, sporting events, concerts, what is your new firm’s policy on allocating these resources and will you be covered for them?  Like marketing, be clear with your needs (number of trips, dinners, events, etc.) and justify the expense with a cost-benefit analysis.

Titles and Designations

Titles are like buying property.  Everyone wants a higher title (and the larger, more exclusive property) but once they have it, they want it to be harder for others to get (or build on) to keep the panache and exclusivity of the designation and neighborhood.

Not all titles are easily equated from one firm to another.  Goldman Sachs, for example, has two titles, Vice President and Managing Director.  Bear Stearns adds Senior Managing Director and Executive Managing Director.  Citigroup has Associate, Treasurer, Assistant Treasurer, VP, Assistant VP, First VP, Second VP… you get the picture.

Titles imply a place in the hierarchy and are handed out for a variety of reasons.  Some firms hand out titles in lieu of higher bonuses (particularly in tough economic times).  Others require that specific performance and production achievements are met.

Many advisors want a promotion in the move.  Generally, firms are not comfortable with this and will offer you a title that is commensurate with your current one; but there is no harm in asking.  If your production and tenure justify it, or if they are keen to hire you, you will be successful.  If you do not get the promotion on the way in, realize that everyone with that title has earned it and when you get it, it will be all the more satisfying.  You will likely want to keep the zoning rules strict once you are a Managing Director.

Personalized Deal Analysis and Comparison

We have provided a lot of information above.  If you would like assistance in analyzing your current deal and receiving feedback, please contact us.  We are available to work through your issues and can help you compare your deal with others on the Street.