{"id":16655,"date":"2019-08-26T08:39:00","date_gmt":"2019-08-26T12:39:00","guid":{"rendered":"https:\/\/lifeinsurance-orleans.ca\/Life-Insurance-Blog\/caution-offer-on-table-may-not-be-as-good-as-it-appears\/"},"modified":"2019-08-26T08:39:00","modified_gmt":"2019-08-26T12:39:00","slug":"caution-offer-on-table-may-not-be-as-good-as-it-appears","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/08\/26\/caution-offer-on-table-may-not-be-as-good-as-it-appears\/","title":{"rendered":"Caution: Offer On Table May Not Be As Good As It Appears"},"content":{"rendered":"\n<div><img decoding=\"async\" src=\"http:\/\/insurancenewsnetmagazine.com\/images\/inn_default_logo.gif\" class=\"ff-og-image-inserted\"><\/div>\n<p>\n\u201cMoney often costs too much,\u201d said Ralph Waldo Emerson.<\/p>\n<p>\nFor advisors looking to make a move, there could be any number of factors prompting the search for greener pastures. Do any of the following resonate?<\/p>\n<ul>\n<li>\nYou\u2019ve outgrown your firm.<\/li>\n<li>\nYour current firm continues to mandate cross referrals, more product sales or partnering with other lines of business.<\/li>\n<li>\nThey cut your payout grids or created minimum account levels.<\/li>\n<li>\nThey change (seemingly) just for change\u2019s sake, and it is tough to understand the value of those changes to the client or the advisor.<\/li>\n<li>\nYour current firm does not offer a full suite of products or services for you to truly take care of your clients.<\/li>\n<li>\nYou\u2019re looking for entrepreneurial freedom to manage your practice with the expertise you\u2019ve spent years developing.<\/li>\n<\/ul>\n<p>\nThe decision to transition your business is not to be taken lightly. In the same way you holistically evaluate wealth management strategies for your clients, so should you consider a transition of your business. You will likely entertain several opportunities and quickly feel like an all-star athlete who just hit the free agency market. Pause: This is where you should be careful of the blinding effect of the money, deal structures and packages that will be put in front of you.&nbsp;<\/p>\n<p>\nI\u2019ll start by stating the obvious: Firms are trying to grow. This growth includes obtaining more accounts, households, assets, revenue and income. It means more product sales and grabbing a deeper wallet share of existing clients. This creates a competitive marketplace for good advisors in motion, and the market knows they don\u2019t come cheap.<\/p>\n<p>\nMy recommendation to advisors is to pause, take a breath and look beyond the upfront check that firms are offering because these bonuses come with a cost. Unfortunately, some firms will tell recruits whatever they want to hear. This is because they know once the recruit joins the new firm, they will be locked in to a forgivable promissory note and will be unlikely to put their clients through another move in the near future. Some call the deals negligent, some call them intentional misrepresentations but, unfortunately, they can be common in the recruitment process.<\/p>\n<p>\nUpfront recruiting checks are almost always delivered as forgivable loans (a debt to be paid off through growth and fee production for the firm). But there are additional costs associated with these loans that may not be immediately obvious to the advisor. Think of this as you would a balance sheet. Is it preferable to grow your cash flow through revenues or through liabilities? You would likely not counsel your clients to raise cash through borrowing unless absolutely warranted, so why would this be a sound approach for you?<\/p>\n<p>\nHere are some things to consider from a tax perspective. The interest on the loan is taxable income, causing you an additional tax burden. In the year you receive the up-front compensation, you will not only be pushed into a higher tax bracket; in some cases, it could quality you for the alternative minimum tax. And compared to earnings resulting from higher payouts received as monthly cash flow, this compensation will incur these extra taxes, which effectively net you less money.<\/p>\n<p>\nAdvisors will often look at the upfront bonus as a source of freedom, but I see it as an additional obligation. Upfront compensation is usually applied to a 5- to 10-year contract. Often, we all have the best of intentions to save and invest that compensation. But, as we all know, reality and competing priorities (both personal and professional) usually drive some portion to be used early in an advisor\u2019s transition.<\/p>\n<p>\nOn the professional side, an advisor could end up using that compensation to buy out an existing agreement or partnership, spend the funds on up-front marketing costs, or use the money to supplement for the loss of cash flow you experience while clients convert with you to a new firm. On the personal side, advisors could spend the compensation on family or household needs, or even go overboard in rewarding themselves.<\/p>\n<p>\nIn the honeymoon period of being recruited and joining a new firm, the multitude of long-term circumstances which could change (either in your life or in the firm\u2019s policies) are often overlooked. These can include:<\/p>\n<ul>\n<li>\nChanges to payout levels.&nbsp;&nbsp; &nbsp;<\/li>\n<li>\nAdvances in capabilities by competitors.<\/li>\n<li>\nChanges in leadership and ownership structures.&nbsp;&nbsp; &nbsp;<\/li>\n<li>\nNeed\/desire to relocate.<\/li>\n<li>\nNew incentives and requirements for cross\/upsell.<\/li>\n<li>\nDesire to move from W2 employee to independent.<\/li>\n<\/ul>\n<p>\nAll these factors could potentially place a significant advantage or disadvantage on the advisor and their clients because of their inability to move and react. Remember, a lot can change in a firm, the industry or personally in 7-10 years. Think about technology and your business 10 years ago and how different they are today.<\/p>\n<p>\nUltimately, an advisor\u2019s clients should be top priority. We all seek to establish sound strategies for our clients. That said, market conditions are not predictable or within our control. Often, the types of compensation agreements discussed are tied to converting and maintaining a certain level of client assets under management.<\/p>\n<p>\nUnder periods of market contraction, clients\u2019 performance and an advisor\u2019s own performance are under pressure. The type of agreement discussed here will compound the pressure at a time when the advisor is least able to influence it. Additionally, if these firms make changes to payout and compensation agreements, install incentives for cross selling and upselling, and raise deferred compensation amounts, they are further controlling the advisor\u2019s ability to meet the conditions of the upfront compensation.<\/p>\n<p>\nHere is my position.<\/p>\n<p>\nIf you are an advisor considering a move, I challenge you to think beyond basic factors. Instead, reflect on the attributes in a firm that will provide you and your clients with long-term happiness and success. I would perform due diligence and make sure the deal you are taking is understandable and obtainable, and that there aren\u2019t any items they are trying to camouflage.<\/p>\n<p>\nThe best way to do this may be to seek the advice of legal counsel with experience in the securities industry to help ensure you are doing everything you can to protect you and your clients\u2019 best interests and understand what you are signing up for. Do a lot of soul-searching to find out what you really want in a new firm so that you can articulate your \u201cwhy\u201d to your clients.<\/p>\n<p>\nAsk yourself some questions:<\/p>\n<ul>\n<li>\nDoes the new firm and its management walk and live their values?<\/li>\n<li>\nDo they have a history and culture that allows you to put your clients at the center of your universe?<\/li>\n<li>\nDoes the firm truly allow you to run your business your way? Will the firm value you as an advisor?<\/li>\n<li>\nDo they have the infrastructure, products and services that fit your practice?<\/li>\n<li>\nCan you see yourself there for the long term?<\/li>\n<\/ul>\n<p>\n<br \/>By taking time to evaluate the landscape, to think about cash flow and balance sheet implications, and to never confuse deal shape with deal economics, you will end up with a peace of mind that, in many ways, is priceless.<\/p>\n<hr>\n<p>\n<strong>Upfront recruiting checks are almost always delivered as forgivable loans. <\/strong>But there are additional costs associated with these loans that may not be immediately obvious to the advisor.<\/p>\n<ul>\n<li>\nWhile you aren\u2019t typically obligated to pay interest, the interest is taxable income and is an income source not withheld, causing an additional tax burden on the advisor.<\/li>\n<li>\nThe year the up-front compensation is received will not only push you into a higher tax bracket; in some cases, it could qualify you for AMT, even after the tax policy changes enacted in 2017\/2018.<\/li>\n<li>\nCompared to earnings resulting from higher payouts received as monthly cash flow, this compensation will incur these extra taxes, effectively netting less.<\/li>\n<\/ul>\n<p>\n<strong>Upfront compensation is usually applied to a 5- to 10-year contract. <\/strong>Often, we all have the best of intentions to save and invest that compensation. But some portion of it usually ends up being spent early in an advisor&#8217;s transition.<\/p>\n<ul>\n<li>\nBuy out of an existing agreement\/partnership<\/li>\n<li>\nUp-front marketing cost<\/li>\n<li>\nSupplement for loss of cash flow while clients convert with you to a new firm<\/li>\n<li>\nFamily and household priorities (taxes, paying down debts, college savings, etc.)<\/li>\n<li>\nYou go overboard in rewarding yourself<\/li>\n<\/ul>\n<p> <a href=\"http:\/\/insurancenewsnetmagazine.com\/article\/caution-offer-on-table-may-not-be-as-good-as-it-appears-3726\">Read the original article at InsuranceNewsNetMagazine.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cMoney often costs too much,\u201d said Ralph Waldo Emerson. For advisors looking to make a move, there could be any number of factors prompting the search for greener pastures. Do any of the following&#46;&#46;&#46;<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/16655"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=16655"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/16655\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=16655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=16655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=16655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}