In the biggest packages, the advisors get only about half their bonus in cash upfront when they join. The rest comes when, and if, they bring over client assets and reach the production levels they boasted at their previous firm within a certain time frame. They hit the full jackpot only when they grow their business past that.
"You have you to be in growth mode to get that extra bonus. They can't just walk in, sit for a few years and walk off in to the sunset," Diamond said.
The Merrill Lynch broker, who manages a branch and recruits other advisers, said new hires lately receive, at most, 150% of production upfront. They get another 60% if they bring 60% of their assets in a year. If they meet a second hurdle of 90% of their original assets after two years, they hit another 50% payout, and so on.
Another broker, who used to work for Merrill Lynch and moved to Morgan Stanley at the beginning of 2009, said his deal was 120% of production upfront with a nine-year commitment, with the chance to earn about another 100% in deferred compensation if he meets all the hurdles.
He believes it was a good deal for Morgan Stanley. "It's cheaper to pay me than to take a chance on some rookie, especially in this day and age," he said.
Alan Johnson, compensation consultant at Johnson & Associates, believes signing bonuses "take forever to be profitable" for the company. But the terms of the new contracts do help them ensure they won't too much on a bad hire.
The strict terms encourage brokers to work hard and not rest on their laurels, while extending the vesting periods on the deferred compensation helps to ensure the firm benefits over time from that hard work. For most deals these days, the clock doesn't start on vesting when they're hired, but instead when they meet the production benchmarks.
Brokers often exaggerate their production when they are being recruited, Johnson noted. "So it's very important to have those check-ins along the way to ensure that they make as much as they said they can," he said. "It puts more accountability in the system."
The brokerages are scrambling to find ways to justify the sums they promise, said Danny Sarch, recruiter and president of Leitner Sarch Consulting. "The fact that it's harder to make an economic model showing profitability of these deals speaks to how intense the compensation is getting."
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