- On November 8, 2017
Leveraging financing to rapidly grow through recruiting and compete with the big recruiting players.
Recruiting bonus and transition
Advisors can get a loan to pay the recruit a recruiting bonus and transitional assistance. Depending on which loan program is used different structures and requirements apply. Essentially in this case, the advisor is investing in the future override income they are receiving from the advisor joining their firm. This gives an advisor a lending option that provides a powerful recruiting value proposition and good investment.
Most of the largest independent broker dealers and firm won’t pay more than a 20% recruiting bonus and most all smaller firms doesn’t pay any bonus. An advisor who is willing to leverage financing gains a strong competitive advantage and cash flows the deals right away.
Recruit a $1,000,000 revenue advisor and pay a 20% recruiting bonus which is $200,000. The recruit transfers 90% or $900,000 in revenues to your firm. Independent advisors typically get a payout between 90% and 100% if an RIA so let’s use 95%. Because you have provided a bonus and an office let’s make the payout 70% to the new recruit.
$900,000 in new revenues
70% payout to recruit = $630,000
25% override to advisor = $225,000
The advisor borrower as recouped the $200K investment back in year one and will net $225,000 each year thereafter. The loan payments for $200,000 on a 10 year term at even a 7% rate is about $2300 per month while the monthly override received is $18,750. This is a net monthly positive cash flow of $16,450. Repeat that a few times and you can see were the power of leverage allows for a path of rapid inorganic growth.
- Advisors can recruit both 1099 and W-2 advisors through this lending structure and can include office build outs and set up for other locations to expand regionally or nationally.
- This is an ideal way for recruiting those advisors who want to retire in the next couple to few years and then sell their practice to you or one of your other recruits as well.
- We can help advisors that qualify, looking to hire, that as a $1,000,000 in revenue about 3 to 4 times that in recruiting budget.
- Lock in the recruit with a non-compete for a typical 5 to 7 years based on receiving a bonus and if breached they would have to pay a portion of the bonus back.
- Other add-ons to a recruiting bonus loan can include the cost of ACAT fees, internal or third-party transition support, and a marketing allocation to promote the new advisor recruit.
- Win-win for you and the advisor who is getting a great payout and a bonus.
Article shared with us from AdvisorLoans.com
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