Some of the largest brokerage firms, such as Morgan Stanley, Merrill Lynch, and UBS Financial Services have recently curtailed their recruiting efforts including the use of large bonuses to lure financial advisors to their firms. However, certain firms have taken an opposite approach and continue to pay bonuses to induce experienced brokers to change employers. As recently reported by InvestmentNews, Wells Fargo Advisors, LPL Financial, and Cetera Financial Group are offering large recruiting bonuses to induce financial advisors to switch jobs and move their clients to new firms.
Wells Fargo is offering recruiting deals for advisors with over $500,000 in annual revenue an upfront bonus equal to 225% of the advisor’s trailing twelve production (“TTP”) and a second bonus equal to 100% of the advisor’s TTP if the advisor is able to transfer over a certain amount of assets from his prior firm within a specific time frame. Both bonuses are secured by promissory notes that can be earned out or forgiven over 10 years.
LPL Financial recently introduced a recruiting package in the form of a 3-year forgivable loan that pays a broker 50 basis points on assets under management transferred to the firm. The deal appears to be gaining traction with advisors as LPL reportedly had great recruiting success in the third and fourth quarters of 2018.
Not to be outdone, Cetera Financial Group recently stated that the firm would offer select recruits 70 basis points on advisory assets and 35 basis points on brokerage assets that transferred to the firm. Such deals would also be tied to a forgivable loan that could be earned out over 5-7 years.
Financial advisors who are lured away to firms with the promise of large upfront bonuses need to read the fine print and understand what they are signing up for, especially if it is an advisor's first firm change. These bonuses come in the form of a loan that is forgivable over a certain number of years. Typically, the brokers receive a lump sum check upon moving to the new firm and sign a promissory note which provides that the firm will forgive the loan if the advisor stays employed with the firm for a certain number of years. Financial advisors should be aware that if they leave the firm before the term of the loan expires (either voluntarily or involuntarily), they will be on the hook for the remaining balance. Most firms actively pursue departed advisors for the loan balances, especially when the advisor has moved to a competitor firm.
Gregory B. Simon Law, LLC is a national securities law firm that provides legal services to investors and financial advisors on a wide range of financial industry matters. This firm has significant experience negotiating and litigating the enforcement of promissory notes before FINRA arbitration panels. For more information on the firm, please visit https://www.gregsimonlaw.com.