How Deals are Paid

The following deal components are calculated based on your trailing 12 months of production (T12).  Firms will generally use the previous 12 months of production, starting with the last full month you can show on a report.  Some firms will have latitude in selecting the first of the 12 months, but others are rigid.  The “recognized” T12 is the basis for the up-front and (usually) the back-end portions of the deal.  There are many factors that will impact your deal.  If you are currently with a bank or a hybrid organization (like Alliance Bernstein), you don’t have a traditional T12.  The firms will evaluate your business and your likelihood of bringing your assets over before settling on a “recognized” T12.  The final T12 may also be factored by using your latest W2.

All deals are defined by a length of time.  Over time, the term of the average note has lengthened as the deals have gone up.  It is common for deals to run 7-9 years, while in the past they averaged around 5-6 years.  Some firms will negotiate the length of the note, others will not.  Much of their latitude rests on the firms accounting of the loans/notes and the management of their balance sheet.  In short, the bigger the loan, the longer they want to keep you on board and the longer they want to be able to write off the receivable.

The up-front payment is a non-contingent payment sometimes called a “forgivable loan.”  Some firms “forgive” the annual or monthly interest and principal payments, others will “pay” you the corresponding amount and it will be automatically used to make a payment.

The phrase non-contingent is slightly misleading in that, the loan/payment essentially vests over the period of the note.  So, it is contingent on time.  It is not, however, contingent on performance.  As long as you are employed and living up to the conditions of your contract, you are entitled to that money.  You can invest it, spend it or give it away.  Do be aware, however, that depending on the terms of the contract, if you are terminated or leave, you must repay the non-vested portion.

Generally firms calculate an up-front payment by multiplying a percent, typically between 90%-140%, by your latest trailing 12 month production or T12.  Your up-front percentage number may be based on what Quintile you fall into.  Payments can be in cash or a combination of cash and stock.  You may be able to negotiate the percentage of cash versus stock.  Depending on your desire, it may be a good negotiating tool.  Many Advisors naturally ask for more cash but fail to understand that receiving cash is a taxable event where receiving stock is not, until you sell it.  You may want to consider taking more stock if you believe the returns on the stock can possibly appreciate faster than other cash investments, and stock is not easily spent on impulse purchases.

Stock, however, typically comes with a vesting period.  You may not be able to sell it for up to 5, sometimes 9, years.  It is typical to see a “cliff vest” for stock from the date it is initially awarded, meaning that you do not receive it until you have stayed for the duration of the vest.  Again, read the fine print in the contract and contact us if you want a referral for an attorney.

There are several factors impacting your deal.  Your ranking in your regional quintile is key as most firms have one deal for 1st Quintile Advisors and another for 2nd Quintile.  Likewise, some firms stand firm to their deal/ranking and others have flexibility.  The business make-up will also impact this figure depending on the portability of the assets and the fees generated by the products you have recommended.

These payments are contingent on your performance.  They may include asset and/or production hurdles.  These hurdles are defined by time frame and amount as outlined in your contract.  Typically, the back-end payments are a combination of cash and stock or all in stock with a multi-year vesting component.  You may see a five year cliff vest for all stock awards from the time they are paid.  This means if your final back-end hurdle is achieved in month 60 of your employment, you may not get access to your final share for 10 years from the day you moved firms.  Here is a sample back-end deal:

Within Mo.’s You must bring in To earn the percentage listed
below of your recognized T12
1-12 60% of AUM 25%
13-24 85% of Recognized T12 25%
25-36 100% T12 20%
37-48 115% T12 20%
49-60 130% T12 20%


This represents a total back-end of 110% of your recognized T12 on top of the up-front.  If you were paid 140% of your T12 for the up-front, your total deal is 250% of your T12.

Just to confuse things.  A firm may pay your back-end as a percentage of your actual production while at the firm.  Again, be sure to read the contract and understand the words used by the manager presenting your deal.

Once you have verbally agreed on the above components, you will begin negotiating the finer points of your deal.  You can add several percentage points to your overall deal by negotiating in (or up) these incidentals.

Contract Language
Vesting and Hurdles
Garden Leave
Sit Date
Client Coverage Mapping
Technology Requirements
Sales Assistant Salaries
Vacation and Work Flex Time
Client Fees
Pay Out Grid
Deferred Compensation
Cross Selling Payments
Tuition Reimbursement
Marketing Budget and Support
Travel & Entertainment Budget
Titles and Designations