Retention Bonuses Expire Next Month, But Some Advisors Jumping Ship Early

Thursday, December 08, 2011 08:49
Retention Bonuses Expire Next Month, But Some Advisors Jumping Ship Early

Tags: breakaway brokers

The clock is ticking down on another year of retention bonuses, so we could see a lot of wirehouse types change partners -- or even go independent -- in the next few months.

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The typical retention deal was structured on a seven-year timetable, which means those brokers can now keep about 50% of the money they got as a "bonus" in early 2009 free and clear.


And if they hang on into next year, they'll get to keep another 10% of that cash -- which many have probably spent anyway.


The rest is typically still considered a "loan" that will gradually be forgiven until the contracts expire in 2016.


Each one-year cliff can mean 10% to 15% of annual production -- a decent amount of money, when you consider that at a 40% payout, many of these advisors would still owe their former bosses around 1.75 years' pay if they leave.


That's still a hardship for advisors who want to jump to an independent model, since the IBDs can maybe provide 25% of production -- 60% of a year's pay on the wirehouse payout -- at the moment.  


But there's still a trickle of advisors moving from wirehouse to wirehouse before the golden handcuffs break. Just the other day, Wells Fargo grabbed a $450 million Long Island team from Morgan Stanley.


You'd think they were pretty unhappy at Morgan Stanley if they couldn't wait a few weeks.


True, a lot of Morgan reps who came to the firm in its merger with Smith Barney have been jumping ship. Interestingly enough, this team doesn't fit that mold. They came straight from the Morgan Stanley side of the company.


They're serial jumpers, though. The principals jumped from Merrill to Morgan back in 2005, and it seems that they were just ready for another move.


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