Retention (Part One)

Retention in the Broker World — The Glue That Binds (Pt 1 of 2)

Part 1 – The Merger Money –

A short while ago I wrote an article entitled “Why Do Brokers Move?” (see blog articles in Curry-Henry Group website) which questioned the why’s and wherefores’ involved in an advisor’s decision to change firms. On the opposite side of that decision lies the question of what could be done on the part of the firm to prevent such an occurrence. What has historically been sorely missing in our business is a focus on RETENTION – in all of its forms.

Retention trumps recruiting – every time! It’s all about the assets and shelling out dollars for recruiting those assets into the firm is one thing but, losing assets to a competitor is pretty permanent and very costly to replace. When a broker walks out the door you (the manager) have just doubled your recruiting costs. And worse there are other costs to be paid in the form of morale and stability within your sales force. Before that happens you had better figure out how to build and nurture commitment in your firm without employing a “burn the boats” strategy.

While retention practices can appear in many forms it’s not surprising that dollars (in many disguises) make an appearance, especially during the “merger” of two firms. Retention of assets on the part of the buyer in the “merger” is critically important in the deal. On one hand those brokers who are being acquired have a strong feeling of being sold and from their perspective a price tag of “nada” is not acceptable. On the other hand the IA’s in the firm on the buy side of the transaction are wondering where their payday is or are they simply chopped liver to be served up if, as and when the firm rings the dinner bell. So, out come the dollars and it is important that they come out early in the deal as the phones will be ringing the moment the merger news hits the airways. The dollars in question can be in the form of bonus/ loans payable or forgivable over a number of years but, more often in the form of stock (real or imagined) which vests over a period of years. Any methodology will come with handcuffs designed solely to protect the assets.

In structuring the retention package on both sides of the deal there will be a reality check on the A.U.M. of the individual brokers. The sales force has just been increased dramatically, but not necessarily the support staff which means the vetting process will begin on what are truly valuable assets (read broker) and which ones are expendable. In this process it is likely that the retention packages will vary from substantial to literally nothing. That certainly can have a harmful effect and put a blemish on the “welcome” sign that was hanging out on announcement day, but remember from the buyer’s vantage point it’s all about assets and the profitability attached to them. Therefore, the retention dollars and how they are doled out are critical to the organizational outcome for the buyer.

On a smaller scale retention dollars are occasionally used in the recruiting process. When a new IA shows up in the office the rumour mill will begin turning on how much he/she was paid to walk across the street. And, once again, the “what about us” signs will be raised. Very often the explanation of growing the company, adding more quality to the sales force and bolstering the reputation of the firm at which you work will be handed out instead of a pay cheque. That might work with those who already have had a payout, but not necessarily with the old-timers who have been sitting there from the beginning. Perhaps in some of these cases exceptions will be made, but more often in another form of gratuity such as a short term lift in the payout grid.

In Part 2 I’ll deal with the non-dollar fundamentals of retention.