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How to Negotiate like a Pro: 6 Techniques for Financial Advisors

Knowing the right negotiation techniques as an advisor can be the difference between a good offer and a great one. You deserve to put yourself in the best possible position when transitioning to a new firm. Consider implementing these six strategies to both protect your existing business and set yourself up for tremendous growth potential in the new practice.

1. Negotiate an Asset Kicker

Leverage the successful transition of current clients to the new firm with an “asset kicker” supplement to the standard asset award. 

Most firms pay out a standard asset award for transitioning a certain percentage of your assets within a specific time frame (i.e. 70%-80% of your assets in the first 6-12 months). Once the transition percentage goal, or “asset hurdle,” is reached, the advisor will receive the designated bonus rate. Consider negotiating an additional higher transition percentage goal, or “asset kicker hurdle,” that rewards your achievement with increased bonus potential.

Are you overwhelmed by the idea of transitioning firms? Download our free list  of 150+ Due Diligence Questions for Financial Advisors to ask along the way ≫

Asset Kicker Scenario

Your Current Assets:
$100,000,000

Your Typical Standard Asset Award

Asset Hurdle ($)
$80,000,000
Asset Hurdle (%)
80%
Asset Bonus Rate
20 bps
Minimum Asset Bonus
$160,000

Add an Asset Kicker to Increase Your Potential Bonus

Asset Hurdle ($)

Asset Hurdle (%)

Asset Bonus Rate

Minimum Asset Bonus

$80,000,000

80%

20 bps

$160,000

Asset Kicker Hurdle ($)

Asset Kicker Hurdle (%)

Asset Kicker Additional Bonus Rate

Minimum Asset Bonus with Kicker

$100,000,000

100%

10 bps

$300,000

Earn 20 bps on all transferred assets for achieving the standard asset award. Add the asset kicker, reach the asset kicker hurdle of 100%, and you are rewarded with an additional 10 bps asset award (30 bps total) on all transferred business. 

Do you believe the energy generated from transitioning to the new firm will result in you being able to transfer nearly all your assets? Negotiate an asset kicker. Good for you. Good for the firm.

2. Request an Extended Payout Rate Lock

Experienced advisors should expect a locked payout rate to be offered as part of transitioning to a new firm. The goal is to keep an advisor’s cash flow as predictable as possible for a duration of time, allowing the new advisor to establish stability in the new position. Without the payout rate lock, advisors would risk reverting back to a normal payout rate grid resulting in unpredictable cash flows.

Depending on the rate and length of rate lock offered, consider requesting an extra year be added to the locked payout rate. Extending the payout rate lock is a no-brainer for a firm who sees value in you and your business, and it can be an extra layer of security to give you confidence in the transition.

3. Consider Asking for Uncapped Production Awards

Do you anticipate significant revenue growth and/or an upcoming acquisition of a practice? You may be able to earn substantially more by negotiating for uncapped production awards.

Uncapped production may not be for all advisors and not possible at every firm due to how production awards are calculated. 

Have questions? Reach out to us for a consultation to discuss how uncapped production award opportunities can be life-changing for your practice.

4. Include a Death and Disability Addendum

Protect your family and business by negotiating to include a death and disability addendum. When the unexpected happens, the last thing in the world you want your loved ones dealing with is unpaid balances on your promissory notes. You don’t want to lose your typical earnings from amortization bonuses either.

Request a death and disability addendum and give your family peace of mind. In the event of a tragedy, the firm will accelerate all the unpaid bonuses allowing your loved ones to focus on family affairs.

Note:
In the event that bonus payments are accelerated, the total amount might become taxable at that time. We recommend consulting with a tax expert for more information. 

5. Plan for Expansion with an Upfront Tail

Negotiate your offer to include an upfront tail, and you are laying the groundwork for tremendous growth potential and expansion. 

Typically a firm will offer an upfront award loan to prospective advisors based on their TTM (Trailing Twelve Months). Advisors with more in production or TTM will receive a higher award loan percentage than advisors with less TTM. 

An upfront “tail” allows current or future members of your team to benefit from your initial award loan percentage, regardless of their TTM. On their own with their lower percentage, your team members would receive a much lower award loan. Joining your team with the “tail” in place increases production for the entire firm, gives the individual advisor a much higher award loan, and it greatly increases the total award loan available for your team.

The Upfront Tail Scenario

A potential team member has $500,000 in TTM and decides to join the practice individually, on his or her own:

TTM
 
$500,000
Upfront Percentage
35%
Upfront Award Loan for Individual
$175,000

You negotiate for a 70% “Upfront Tail” and the team member with $500,000 joins your team:

TTM
$500,000
Upfront Percentage
70% - Your Upfront Tail
Upfront Award Loan for Team
$350,000

By taking advantage of your “tail” percentage, the new team member increases the overall award loan from $175,000 to $350,000, an increase of $175,000! 

This is a win for all parties. The team adds a quality advisor to the group and can reinvest a portion of the additional earnings back into the business. The firm wins by increasing their overall production. The individual advisor wins in receiving far more than what would have been achievable on his or her own.

Requesting an “upfront tail” can be a phenomenal way to expand your practice.

6. Maximize your Extra Production Bonuses

Many firms will offer a few years of production bonuses earned by reaching various production hurdles.

Is the practice in growth mode or do you anticipate possibly acquiring another advisor’s practice in the future? Find a way to add as many years of production bonuses as possible, even lofty production hurdles years out that might seem unachievable now. You will be grateful later for your foresight when the bonuses kick in.

Improve your offer as an advisor with these expert negotiation techniques. Looking to discuss one of these techniques in more depth to see if it’s right for you? Connect with us to set up a consultation.

 

Are you overwhelmed by the idea of transitioning firms? Download our free  Transition Guide for Financial Advisors for over 150 helpful questions to ask  along the way ≫

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