How to Get a Deal

The hiring firm is considering an acquisition of your business.  They must conduct their own due diligence on you and your partners.  Your honesty and forthcoming of information is critical in this process.  If they think you have something to hide, it will negatively impact your deal size, if not the ability to get a deal at all.  How you present yourself is also key to the deal.

Provide Documentation
Before getting a deal you will have to provide verification of your trailing 12 months’ production (T12) figures and your assets under management (AUM).  Your T12 is only the commissions and fees earned by your clients’ investments.  Your annual revenue will include any other income your produce.  Only the commissions and fees generated will be used to calculate a T12.  Each firm has different reporting on these metrics but the hiring firm will want a report with your name and the firm’s name on it.  The hiring firm may even ask for specific reports that will show your business.  These reports also must be the most recent that you can obtain from your firm.  Nothing else will be acceptable to calculate your T12 and get you a deal.  Your deal will be based on the numbers that the hiring firm calculates to be your current T12 and AUM.  Two years of W-2’s will corroborate your earnings.  The credits and payments for referrals to other parts of your firm (Investment Banking, Prime Brokerage, etc.) that you earn will not be included in the T12 number the hiring firm calculates but some firms are more flexible than others when it comes to including these “one off” revenue sources in a deal.  Typically, they are not included in the deal, but you should be sure to discuss your being compensated on those transactions going forward.

All firms require you to fill out and sign pre-hire paperwork prior to your receiving a deal.  It will allow them to conduct a background check, review your credit history, U4 history, and look for any legal issues.  This is standard procedure and you shouldn’t be alarmed that your current firm may find out.  They won’t, and we are not aware of a single breach in this matter.  You will be asked to comment upon any “mark” or negative finding.  It is best to alert the manager of any pending marks in advance of their finding it on their own.  Transparency and partnership is key to a lucrative deal.

Typical Deal Stages

Verbal Deal
The first deal discussion may be a face-to-face meeting where the hiring manager will verbally review the deal or perhaps they may deliver it in an email.  It will cover the Up-Front and Back-End.  This begins the negotiation; and you should expect to negotiate.  Many firms are not going to give you their best deal first; it’s going to be the standard cookie cutter deal.  While most firms have wiggle room on both portions of the deal, many see it as a zero sum deal.  In other words, if you want a bigger up-front, they will take it from the back-end and vice versa.  But, it is not set in stone.

Shake Hands on the Deal
When you agree to the up-front and back-end portions, it is up to you to “shake hands” and make a commitment to moving to the firm.  This marks the second part of the negotiation.  Committing to join their firm does not hinder your negotiating position.  It strengthens it as the manager now sees you as a member of his team and is more willing to go to bat for you regarding your requests.  Additionally and importantly, shaking hands does not obligate you to move, but things do become a little more serious.  Certainly, deals have broken down after shaking hands, but you have made a good faith agreement to move forward.  It is not wise to commit to two firms at this point in the process.  You may commit to a firm and keep an open dialogue with others, which is highly recommended.  You may even have several verbal and written deals.  You should keep your options open, but there is an industry understanding that if you have committed to go to a firm, and have shaken hands, that you are negotiating in good faith to make it work with that firm.  Importantly, if you make a verbal commitment, shake hands and then go to a competitor without letting the verbal partner know, you may be barred from that firm in the future.  Always watch your reputation.

Identify the Ancillary Deal Points
Negotiating the finer points of the deal can add several percentage points.  Having the firm pay additional salaries for your sales assistants, providing an increased marketing/T&E budget, and covering your technology expenses is key to your business.

While you are negotiating the finer points, you should select your Move Date.  You may set this date at any time, but use it strategically in the deal process.  The move date gives the firm greater confidence that you are joining them and gives you a leg up in negotiations.  Setting a move date also gives the manager leverage within his firm to press any area that may have some build out to complete (technology or physical).  At this stage, you are still not obligated to move, but you are considered to be negotiating in good faith to move when agreed.

Written Offer
At some point before your move date you will receive a written offer which will outline: employment obligations, details about your note, the up-front loan, the back-end hurdles (goals and payment amounts), vesting details and more.  This offer can be in the form of a Letter of Understanding (LOU) or an actual contract.  This contract should be reviewed by you and an employment attorney.  Many times written offers make it to an Advisor and they are incorrect or, because of the legal language and terms, are misunderstood.  This is not because the firm is trying to pull the wool over your eyes and get you to sign something you never agreed to.  Rather, it is because at this point the hiring manager hands off the deal specifics to the Human Resources Department and mistakes are made, numbers can be transposed, things that may have needed to be added or deleted were overlooked.  Your contract will be uniquely yours and if your written offer comes to you correct, wonderful.  Just be aware that if it has errors call the manager and let him know.  This is why we recommend that you review it with your attorney.  As much as you will try to get this reviewed and signed well in advance of your move, it will be close.  Do not fret.  Some firms provide the final documents for your signature on the day that you move.  It is your prerogative, however, to request this to be done in advance.

You want to move as soon as possible after you have signed the contract.  First, the longer you wait to move, the more opportunity there is for a breach of confidentiality.  It is likely that your current firm will catch wind of your meetings and discussions.  The longer it drags out, the more likely there will be a leak.  Second, you can not work for two firms.  You will find that as soon as you receive your contract (if not before) you will be mentally checked out anyway and it will be tough to sell to prospects and you will simply want to move on.

Side Letter
You will be negotiating many items after the initial deal.  It is not recommended to put everything in your contract.  We suggest that your attorney create a side letter that includes the finer points that are negotiated after you agree to the terms of the up-front and back-end.  In most cases an email confirmation will suffice, but in others, particularly if they are out of the firm’s ordinary course of business, have the firm agree to them in a side letter.