Schedule a Consultation
Boston Cardinal

7 Key Questions for Advisors When Offered a New Book of Business

A new firm has just offered you part of their book of business to join the practice, but you are uncertain about your next steps. How do you know this is really the life changing career opportunity it seems to be? Is this the right time to move forward? 

Learn how to analyze and evaluate your offer with confidence by asking the right questions. Now may be your chance to elevate your career to new heights.

Consider the following scenario.

Advisor (You) in Current Firm
  • 400k in TTM (Trailing Twelve Months)
  • 40% Payout Rate
The Breakdown
  • $400k TTM x 40% Payout = $160k
  • Your Total Net Compensation: $160,000
Your New Offer
  • New practice offering a 50% payout on current business (400k) transferred to firm
  • New practice offering an additional 25M ($25,000,000) in assigned assets with a 25% payout
The Breakdown
  • $400k TTM x 50% Payout = $200k
  • $25,000,000 x .01 x 25% Payout = $62,500 ($25M in assigned assets with 1% return on assets)
  • Your Estimated Total Net Compensation: $262,500

The new offer yields a potential increase of 64% or $102,500 in net compensation. Talk about a great growth opportunity on paper, but how do you make sure this is the right move? What else is important to consider? Evaluate your decision with the seven key questions below.

How to Analyze Your Offer as an Advisor (Seven Key Questions)

1. Will your current business follow you to the new practice?

Transferring your current clients to the new firm is critical to your success.  Even the most promising of new business acquisitions can be disappointing if you lose clients in the process. Implementing a modernized communications plan to raise awareness can help ensure an efficient and smooth transition.

2. What strings are attached with business acquired from the new practice?

Advisors evaluating an offer with the promise of new clients and additional assets should anticipate being asked to sign a non-compete agreement. While the advisor benefits from the tremendous growth potential of acquiring new business, the firm must also protect itself. Many firms will add a non-compete clause to the prospective advisor’s initial contract with respect to the newly acquired clients, securing the business regardless of what happens in the future.

3. Are you able to protect current business with a "Carve Out" clause?

The prospective advisor should consider requesting a “Carve Out” clause for current business he or she is transferring to the new firm.  The advisor can join the new practice with confidence knowing that he or she will retain ownership of prior business and client relationships.  In the event that the advisor leaves the new firm in the future, the advisor’s prior clients should not be subject to the non-compete agreement described above.

4. Will your current business be handled with separate payout rates?

Advisors should plan to negotiate separate payout rates for prior clients migrating to the firm and new clients acquired as a result of joining the practice.  As demonstrated in the example scenario above, the higher payout rate should apply to existing or current business, and the lower rate should apply to newly acquired clientele.  The offer is appealing to both the firm and advisor.  The firm benefits from inheriting the advisor’s transferred prior clients while the advisor enjoys a higher payout rate for existing business and a brand new group of clients.

5. How much will you benefit from your new clients' growth, especially if it is significant growth?

Advisors and firms should consider mapping out the compensation details for the newly assigned clients. If the newly assigned clients, now handled by the advisor, show significant growth, how will the advisor be fairly and appropriately compensated?  The advisor and firm should especially focus on shared growth in the short-term, discussing how to reach an equitable solution if the clients show significant early growth. This type of goal-setting exercise should be received with positivity on both sides as all will benefit.

6. Have you considered requesting an "earn out" or "option to purchase" in your contract?

Advisors should determine if an “earn out” or “option to purchase” clause would be right for them.  

An “earn out” clause results in the advisor working at a substantially lower than normal payout rate to earn equity in the newly assigned book of business. 

Advisors who want a more competitive payout rate throughout a longer time frame should consider an “option to purchase,” agreeing to terms where the assigned book of business is sold at an agreed upon date in the future.  

Connect with us to discuss the pros and cons of these potential options in more detail.

7. When considering an offer to join a protocol firm, have you thoroughly reviewed the contract?

Even when joining a team practice with a protocol firm, it is still critical to fully understand the contract. Team practices at protocol firms can include restrictive language in contracts making it more challenging for a departing advisor to transition their business based on the agreement.  This tactic should be addressed and mitigated early on during contract negotiations to prevent complications down the road. Advisors entering a new protocol firm’s team practice or thinking of breaking away from a team should consult an attorney to carefully review the contract.

There is no better time to be a financial advisor. New platforms are emerging across the industry where teams are seeking talented people to join them. As an industry we are experiencing a talent shortage and opportunities are up for grabs. If you are considering a new offer or wondering about your next steps, schedule a consultation now to discuss your options. We can support you in taking your financial practice to the next level.

Grow with a properly designed financial advisory model

Create a business that’s profitable, impactful, and life giving.
Schedule a Consultation