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Advisors See Double in Sunset Bonus

Offers
May 1, 2014
Mark Elzweig
is president and founder of the executive search firm Mark Elzweig Company.
Some advisors approaching the last stretch of their careers are swapping firms for
doubledip compensation deals offered by rivals. !n addition to upfront bonus money
when they ma"e the switch, they are also able to cash in on sunset deals when their
nineyear upfront deal ends. !n a typical sunset deal at a wirehouse, the departing
advisor gets 200# of the gross production in the boo" of business that he or she
hands off to a younger advisor. !t is paid out over a fiveyear period.
$his %get paid twice& compensation model is designed to lure older advisors to a new
firm and represents a last hurrah for the grayhaired set. $he average wirehouse
advisor is '1 years old, while 41# are '' or older and 10# are over ('.Cerulli
Associates predicts that approximately onethird of advisors will exit the business in
the next 10 years, suggesting a great number of advisors will in coming years face
the )uestion of whether to stay or go.
Ma*or firms, including all four wirehouses and most regional bro"erages, are
promoting this type of recruiting pac"age as a standard offering to prospective
advisors who are approaching retirement.
So what is an advisor to do+ ,hanging firms late in a career can be stressful and
re)uires many extra hours of hard wor". -s advisors age, many simply do not want
to muster the energy to deal with the rigors of opening new client accounts at
another firm. $hat said, the double bonus recruiting pitch is hard to resist, especially
since the accounting firm Moss Adams reports that only 2.# of advisors have a
succession plan.
/aby /oomers are suddenly reali0ing that someday soon they will want to retire, so
why settle for one payout when they can get two+ 1or decades, they have instructed
others how to feather their retirement nests. 2ow, they must ta"e their own advice.
3eplenishing a retirement nest egg is an especially compelling concern for advisors
who lost funds in wirehouse stoc" during the crash.
4ne advisor ! "now recently left a firm he had wor"ed with for more than 50 years.
6e li"ed his firm7s platform and its management on both the branch and regional
levels. /ut when he hit (', he decided that soc"ing away money for his own
retirement was his top priority. - recruitment pac"age featuring an upfront bonus and
a potential sunset deal convinced him to move to a competitor in the neighborhood.
There are many similar cases where an additional sunset deal is factored into an advisors
own retirement planning. These efforts play out at both regional brokerages firms as well
as the wirehouses.
Some advisors do a variation on the %get paid twice& deal by *oining an independent
bro"erage or by forming a registered independent advisor firm. $he upfront money
that independent bro"erages pay 8 between 10# and 40# 8 is typically a fraction of
what wirehouses offer 8 between 100# and 1'0#. $otal potential wirehouse
pac"ages, depending on the advisor7s production at the new firm, can hit the 500#
threshold.
6owever, if they do well, advisors who *oin independent bro"erages or form an 3!-
get a bigger payout at the end when they sell their practices. !ndependent advisory
shops typically sell for 1'0# to 500# of gross production. !ndependent advisors can
also maximi0e their contributions to their corporate defined benefit plans.
/y contrast, advisors who decide to stay with their firms can hand off their boo"s to
younger advisors and get approximately 200# of the gross production over a five
year period. /ut why forgo upfront money+
Meanwhile, some wirehouses are twea"ing per"s to encourage older advisors to
stay with the home team. 1or example, older advisors who opt to *oin a team that will
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ultimately ac)uire their boo" can get the higher payout en*oyed by the senior
producer. !n some cases, they can get extra travel and entertainment allowances as
well.
/ut such per"s are not as compelling as lumpsum payments.
!nertia is li"ely to be a much more compelling force. Ma*or wirehouses are counting
on 2ewton7s first law of motion to "eep their aging advisors in place9 - body at rest
tends to stay at rest.
/ut advisors may subscribe to an updated :all Street version of 2ewton7s law9 -
body in motion tends to stay in motion, especially when there is a big chec" 8 or two
8 involved.

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