First Rule of Recruiting: Read the Fine Print

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Say what you want about loyalty and complacency. It’s money that talks!

We’re sure a lot of brokers move for the “right reasons,” but it’s hard not to be blinded by dollar signs when you’re being teased with promises of 300% of trailing-12 month production. Before making a decision based solely on the numbers, though, it’s worth doing the due diligence.

Having worked as a recruiter, my thoughts were triggered by a submission to x3mdot addressing the juicy deals that big firms have been offering to Credit Suisse’s U.S. advisors now that the Swiss bank is shuttering its U.S. brokerage. The writer’s advice is applicable to anyone considering a transition, and wisely outlines what to look for in a recruiting contract’s fine print.

“Too many Credit Suisse brokers are not reading their deal letters/documents carefully, and that could be very costly to them later. Here’s why:

1) The broker’s deal money is most likely in the form of a demand loan, which means that your new employer has the right to demand their money back immediately at ANY TIME, for ANY REASON. The terms may even allow for your new employer to liquidate assets and remove cash from your brokerage accounts WITHOUT YOUR PERMISSION should you not repay your loan right away. So, what happens if you’ve taken your deal money, bought a home with it, and your loan is called? Well, too bad for you!

2) Many of the loans that make up your deal money may have ANNUAL amortization/forgiveness schedules. That means your pro-rata loan forgiveness only happens once a year. Should you depart for another firm prior to that annual anniversary (or your loan is involuntarily called beforehand), you will not receive any pro-rata debt reduction on your loan. It is much better for the broker to have a MONTHLY amortization/forgiveness schedule. This way, your loan balance (and your risk) is reduced every month and your ability to leave quickly is enhanced should your employer get into trouble.

3) At some banks, like UBS, the loan forgiveness is NOT automatically guaranteed. If you don’t achieve a certain percentage of your hiring T-12 (trailing 12 months of revenue) within a certain period of time, your loan will NOT be forgiven! That is a very big risk that many Credit Suisse brokers might not know they are taking!

Before signing anything, Credit Suisse brokers should read all the deal documents and have an attorney review everything. Don’t just focus on how much money you are receiving by signing up with a particular bank. You should be equally as concerned by the terms. Don’t be afraid to demand changes where necessary!!”

I would only add that every deal comes with its own terms, and you should proceed with caution (if not with a good attorney) to know what’s negotiable and what’s boilerplate. As our correspondent indicates, there are no free deals. Even as the upfronts rise, so do the golden handcuffs, meaning some deals now require you to remain as much as 12 years to capture the full signing benefits.  It wasn’t long ago that the stay requirement was five and then nine years.
*Mr. Peterson is a staffer at x3mdot, who also has worked at a wirehouse and as a recruiter.  The opinions are his own.

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