Adviser recruitment programs today typically feature a variety of incentives to move from firm to firm, including signing bonuses as well as back-end bonuses.
In today’s highly competitive environment, typical signing bonuses are running between 100%- 150% of the trailing 12 month production. These signing bonuses generally require the adviser to transfer a certain percentage of their assets within the first year to qualify for the back end bonuses along with a certain percentage of gross production within the first year of employment.
Unlike the signing bonuses, typical back end bonuses can extend for 3-6 years and are based on hitting various asset and production goals. For example, a typical back end bonus could require that the broker bring in more than 75% of assets from the previous firm within twelve months, and produce about 75% of the trailing twelve months commissions during the first year. Thereafter, the expectation is typically that the broker will produce 95% of the onboard gross production during the second year, 120% the third year, and so on.
The back end bonuses can add up to as much as 150%, making the total transition bonus package worth anywhere from 250% to 300%.
Although these recruitment programs may seem very attractive, they are generally reserved for some of the industry’s most successful advisers. Moreover, firms are targeting those advisers that are fee-based and that have average revenue to asset ratios. Firms are also targeting those advisers who they are willing and able to sign longer term contracts which range anywhere from 8-10 years.
Such recruitment bonus programs have not gone without concern by industry regulators. SEC Chairman Mary Schapiro recently commented that today’s recruitment programs “compensate and incentivize people who take short-term risks at the expense of the long-term franchise and at the expense of investors”. Although brokerage firms typically give new recruits ample time to transition so that they are not pressured to overtrade in their client accounts to meet production goals, regulators fear that such programs may lead to churning. However, most firms have watched the account turnover ratios for new transitional hires very carefully to combat this fear.
