I work for a major Wall Street firm. Recently one of the financial consultants in my office left to go to a competitor. This sparked a mad dash as the FC called clients asking them to go with him and the rest of us calling those same clients explaining why they should stay. If you are interested in the inside story of why FCs move between firms, and what you should consider when asked to move with them, read on.The brokerage business is, above all, a business. Producers (people like me) charge fees or commissions for advice and trades. The dollars that are generated are split between the producer and the firm. A typical split is 40% to the producer and 60% to the firm. The more we produce, the more we take home. It’s that simple. The only way to dramatically change this equation is to jump firms for the signing bonus, which can be substantial.
For example, the producer in my office managed about $200 million in assets. At an average 1% fee, that represents $2 million annually in fees, $800,000 to the producer. Pretty good by almost any measure, and, fair if the producer is doing a good job for his clients.
This producer decided it was not enough, however, and went to a competing firm where he was paid a $3 million dollar signing bonus in exchange for an agreement to stay for 9 years. $3 million seems outrageous, and it is, but it makes sense for the winning firm if you do the math. If things remain static, the firm will earn $1.2 million in fees for 9 years, more than offsetting the bonus.
The important thing to consider, if you are asked to switch firms with your producer, is what’s in it for you? Having called some of the producer’s clients I know that he has constructed an elaborate story about how the old firm is bad and the new firm is good. Believe me, all the big Wall Street firms are in the same boat right now. All are implementing the same new policies that make the job less enjoyable and less lucrative. So, cut through the song and dance and find out how the change benefits you.
Perhaps there is no benefit other than maintaining a relationship with a trusted advisor who has delivered excellent service and results. If so, let him enjoy a nice signing bonus. But, be informed. Also know that in some cases, producers can move for the benefit of the client. But this happens when moving from one of the big firms to a small or independent one, not when moving to another of the same type.