Imagine that you are currently a registered representative with a firm, but are aggressively being recruited by another firm - whether your stay at your current firm or move on to another is an important, career-altering decision. In order to make the best choice, you must consider a wide range of variables. In this article, we'll give you some pointers on how to decide whether to move on to a new firm or stay put.
Commissions are usually the biggest factor in making a move. If you're interested in joining a new firm, study the commission rates carefully. Some firms pay a higher rate based on certain thresholds of production, while others base their rewards on the number of years of service an employee has provided.
Too often, brokers switch firms in search of a higher payout, only to realize later that in order to get the lofty payout they expected, they need to generate $2 million in annual gross commissions, while at their old firm they needed to generate only $500,000. In other cases, reps make a switch to a new company, carrying with them their huge book of business, only to receive smaller payouts than expected because the company doles out the high payout rates only after five or more years of service. For this reason, it is essential that you find out exactly how a potential employer's commission structure works and how it will benefit you.
Your New Duties
Before signing up with your new firm, it's important to assess whether your duties will remain the same or change drastically. In your regular position, you may have become accustomed to simply executing orders for your clients, for example. Will be you managing the same clients in the same manner at your new firm, or will you be responsible for new and different duties? If you get a new position your job duties are likely to change substantially. Before moving to a new firm, find out exactly what your new job will entail as well as what will be expected of you over the long term. You will need to have answers to these questions before making a move.
Some of the bulge bracket and regional firms give their brokers the tools they need to sell carte blanche. On the other hand, there are others that will give you a smaller payout, or make line item deductions in your paycheck to cover expenses such as a cold caller, telephone, computer or marketing lists.
If a firm expects to charge fees for the products and services you need to build your business, this can really cut into any increase in salary or commission that attracted you to the new job in the first place. Before you sign your new employment agreement, speak with the sales manager or the hiring representative. This person should be able to give you a list of the costs that may be billed to you if you are hired. Remember, it is not uncommon, (and definitely not unreasonable) to ask the company to compensate you for some expenses (such as a cold caller at smaller firms), assuming the commission rates you'd receive make paying for those expenses reasonable based on your expected annual production. Of course, you must also use common sense. If your anticipated commission payout is much higher than those of other firms in your area, it might be better to pay for such expenses yourself. (If you pay for some of these expenses, they may be deductible. To learn more, see Don't Overlook These Broker Deductions.)
Consider a case where many brokers at a particular firm are registered and have clients in 30 or more states. One of these brokers then decides to switch to a firm that will provide a certain sales territory, a firm that is not a registered broker-dealer in a given state, or a firm that is banned from doing business in a certain state. In these cases, the representative will have to give up the majority of his or her existing book of business, or give up the entire list of clients for states in which the firm is banned or unregistered. As a result, the broker may be left with a smaller pool of candidates for sales leads going forward, which could significantly reduce income.
To be clear, there are some instances in which a broker may be allowed to keep his or her clients if the rep and the new firm were to reach an understanding. However, this type of resolution assumes that both parties are also able to obtain the appropriate licenses. There is no guarantee that this will be the case; therefore, failing to discuss the states you are permitted to register in at the time of hire is one of the biggest mistakes you can make. Be sure to inquire if you will be allowed to obtain a registration in all states, particularly if you have clients that you would like to keep after making the move. By that same token, make sure the new firm is registered in all of the states in which you plan to conduct business.
Some firms don't have retirement plans and/or they do not make any retirement contributions, while other firms will offer a payout upon retirement equal to a certain percentage of your most recent annual production. Naturally, payouts vary from firm to firm and need to be checked out before you sign a deal to make the switch. In addition, if a broker or advisor has been at a firm for many years, he or she may have a large amounted of vested and unvested funds in an existing pension plan. Leaving that firm for another opportunity could mean leaving thousands of dollars on the table. (For related reading, see the 401(k) and Qualified Plans tutorial.)
Should you decide to move, the new firm could be the company you stay with for the remainder of your career. Take a long-term view of the situation and consider the contributions that both you and your new firm will make to your retirement account. Leaving your current position may just make good financial sense.
Before even going on an interview with a new firm, do a search of the company on the SEC website. This will allow you to review the details of any pending arbitration, as well as see the dollar amounts plaintiffs are seeking. It will also give details of past securities infractions, any penalties paid, and any amounts paid out in arbitration. In most cases, arbitration disputes are cleared up in short order and you may not have anything to worry about. However, if your new firm becomes entangled in a serious investigation, the pending litigation could clean out the firm's assets, and force it to let its sales staff go.
As a broker, you want to uphold an exemplary record with a firm with the same ethics. Obtaining this information can be very useful in the decision-making process, and may actually help you avoid a career disaster.
There are many variables to consider when switching firms. Don't just accept another firm's offer at face value - research what your new position will entail and how it will impact your life and career. You will be happy you did!