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Telling Clients About a Signing Bonus Is a Great Idea

April 11, 2013

Disclosure is just around the corner. You know, that disclosure, where you’ll have to tell clients the exact number of dollars you receive when switching firms. The rule is now under Finra review, and some form of disclosure requirement is likely to go into effect later this year.

Maybe your move is already scheduled or you are seriously thinking of making a change. But the rules of the road dictate that you can’t have any specific conversations about your new firm while still employed at the old one. How do you talk to your clients about the move and any signing bonus it entails?

Rule or no rule, our position historically has been to recommend that advisors deal with “the deal” up front and talk to clients proactively. Our rationale is tactical: Once an advisor has left, his colleagues at the old firm are likely to tell clients that “Joe left for the money” and cast him in a negative light.

So if you’re departing for greener pastures in the near future, keep the following in mind. The playbook is the same whether or not disclosure becomes the law of the land.

Explain how the move benefits the client. Make the case that the new firm is better for your clients than the old firm. Remind them of any issues with the old employer that left them frustrated. Remember, they’ll probably be hearing criticism — of both your new firm and your own professional style — from your former colleagues. Stress that you always act in your clients’ best interest, and the move is no exception; in fact, it’s another manifestation of your responsibility to them. The departing advisor must be prepared to win current clients as if they were prospects. In other words, take no relationship for granted.

Explain the dollars you got in the context of what you are leaving behind. Every firm has golden handcuffs — deferred compensation that makes it expensive to leave. After understanding the reasons behind the move, clients should understand that it comes with a significant cost to you. In addition, clients should know that you won’t be earning money while accounts are in transition. So the deal is also meant to replace lost income for the first few months.

Clients should be reminded that being made whole upon starting a new job is not a new concept, nor one that’s unique to this industry. Being transparent about the deal shows you trust your clients — a great way of earning trust in return.

Explain why you couldn’t talk about the move sooner. People outside the industry have a tough time understanding how a professional can leave one firm at 4:00 p.m. on a Friday and begin a new job at 4:15 the very same Friday. Yet, as we all know, that is reality: There’s no two-week notice in this industry, and regulators explicitly forbid soliciting for one firm while you're employed at another. Again, take nothing for granted about clients’ knowledge or lack of knowledge about the business and its peculiarities.

Be specific about the deal’s terms. Yes, advisors are paid the signing bonus up front, but they are also required to stay at the new firm for the contract’s length or they forfeit a pro-rated portion of the deal. Explain that you’ll remain an “at-will” employee who may be fired at any time, for any of the usual reasons.

Be bold. Everybody wants to be part of a winning team, including clients. Successful investors will understand the concept of paying for talent. Deals exist because too many firms are chasing too few quality advisors — it’s basic supply and demand. Explain this dynamic to clients in plain English. The message is that the new firm is making a market-driven investment to attract top talent, and that it’s an honor to be among those considered.

Satisfied clients follow their advisors. If they didn’t, firms would stop paying up-front money. Do what’s right by your client, be transparent about the risks and benefits of the change, and the move will be a success for everybody.