When advisors talk about why they’re unhappy with their firm, they will often tell you that it's "not about the money."  Instead, they commonly cite a lack of shared values, slow (or no) decision making and concern for the shareholder at the expense of the client.

But while money may not always be their number one reason for deciding to go elsewhere, it almost always becomes an emotionally charged and critical consideration. So let's talk about it.

When planning a move, there are three financial elements that need to be taken into account: capital, cash flow and equity. Advisors need to consider all three to get an accurate picture of their new deal and to decide whether it’s one they should take.


How much bigger will my bank account be if and when I join a new firm? This sounds like a simple question, but there are others that need to be answered.

First, will you be receiving a forgivable loan or a business loan? If it is a forgivable loan (which is traditional when you are going to be an employee of your new firm), what is the IRS-approved interest rate that will be used as the loan is forgiven and over what period will this take place? Will you be taxed monthly, quarterly, or annually and how will this impact your cash flow? And most importantly, how much do you get to keep after taxes?

If you are evaluating a forgivable loan versus a business loan, there may be some advantages to borrowing the money, instead of paying ordinary income tax as the loan is forgiven over time. An advisor's personal capital and cash flow needs will be factors in deciding which makes the most sense. Working with a tax professional can help you determine this. 


How much money will show up in your bank account each month? This also seems like a basic question, but it requires further scrutiny.

A small difference in your payout can mean a significant difference to your cash flow. For example, take a $750,000 producer that is getting a 42% payout versus a 50% payout. The difference over a 10 year period, the average term for a forgivable note, is $600,000.

The difference can be even greater for a wirehouse advisor who’s in the "penalty box"  –  that is, an advisor who’s payout is penalized because his production falls below a certain threshold. In some cases, these advisors can expect to double their income at their new firm.

It also helps to know if you’ll be paid monthly or quarterly. If you can't spend it at the end of the month, it doesn't go in your cash flow calculation.


Many of the awards and bonuses that are given to financial advisors vest gradually over a period of time. Others cliff vest in as much as eight years. You need to understand the timing and if the bonus will be paid out as cash, stock or something else.

Once you know how you will be compensated, you can convert this "equity" into a cash flow model, or run a simple present value calculation. Don't forget that these awards will be taxed as ordinary income, once you receive them. By way of comparison, if you start your own firm, your equity will be taxed at a much lower rate as a capital gain, if and when you sell your business.

And while we're talking about money, if you have a W-2 relationship with your firm and consider your "book" yours, you should know that most firms consider it theirs. That means you won’t be able to sell it when you retire and will have to rely on your firm's retirement compensation provisions instead.

The advantages of being at a firm where you can actually sell your business is something to think about. If you are considering taking “payments” in lieu of selling your practice, a cash flow analysis is a simple and necessary exercise to complete.

For example, a $750,000 producer who is at a 42% payout and gets 60% of their production the first year they retire, followed by 50% payout in year two, and 40% in years three and four would receive a total of $598,500 as ordinary income (16% of the total production over the four years). But assuming this advisor could sell the business for two times revenue, he would receive $1,500,000, and potentially better tax treatment. There are several firms that can provide you with a valuation of your business so that you can decide if this is something that makes sense for you.

There is no right or wrong answer to the money issue, and personal preferences and intangibles also need to be considered. But when it comes to the financial aspects of a firm transition, there is quite a lot to consider.

One last word of caution: In many cases financial advisors can be "blinded" by the upfront money that they’re offered. Yes, the upfront can be life changing, but when you look at the total picture including taxes, things may look very different.

Mark Albers has 20 years of industry experience at Morgan Stanley and Merrill Lynch. He currently serves as president & CEO of Albers & Associates Consulting, a firm that guides advisors in transition.


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