How to Win Better Terms When Joining Broker-Dealers
When looking to join a broker-dealer, financial advisors, regardless of their size, should always negotiate because there are various ways to get a better deal, Jon Henschen writes on ThinkAdvisor.
Bigger producers have more leeway in what they can demand and those with a clean compliance record have “exceptional” bargaining power, according to Henschen, president of Henschen & Associates LLC., which offers consulting and recruiting services to independent broker-dealers.
Nonetheless, all advisors should consider the different areas that could be up for negotiating — starting with payout.
For example, self-sufficient advisors with little use for the back office of the broker-dealer can often get up to an extra 2% in payout simply because they cost the broker-dealer less, he writes. Even if a firm says it has a fixed grid determining the payouts it doesn’t hurt to ask, insists Henschen.
Meanwhile, advisors who do a high volume of trading in certain products can often get a better deal on ticket charges and in some cases per-contract fees, he writes. And although broker-dealers frown on advisors leveraging them against each other, advisors nonetheless can often succeed in negotiating better terms on forgivable notes or higher payouts during the note period, according to Henschen.
When a firm doesn’t offer forgivable notes, advisors can negotiate for the firm to pay the transition expenses and certain first-year expenses, such as errors and omissions insurance, technology fees, state registration and more, he writes. Advisors can also drive down the mark-up fees charged by money managers — particularly when an advisor has $100 million or more in advice assets, according to Henschen. And advisors selling annuities can often negotiate a few basis points up when it comes to their share of the commissions, he writes.
Henschen notes that broker-dealers increasingly pay better transition money in the third and fourth quarters, when they’re striving to meet annual recruiting goals.
But advisors need to be cognizant of the strain put on the broker-dealers’ staff by the transitioning of other teams or the vacations of its staff, he writes.
Transitioning at the right time means being able to get dedicated attention when advisors need it, says Henschen.
Advisors should have a securities lawyer review their broker-dealer contracts, in particular when it comes to the terms of their departure from the firm, he warns.