CASE STUDY: How a Billion-Dollar Merrill Team Negotiated an Extraordinary Recruiting Package

There are billion-dollar advisory teams all over Wall Street. Very few receive the kind of recruiting package that John Pham and Jimmy Yip ultimately secured.

After more than four years of evaluating firms, negotiating with multiple platforms and seemingly getting close to moving more than once, the Merrill Lynch team last week joined UBS with approximately $7.5 million in annual revenue and $1.2 billion in client assets.

I represented Pham throughout much of that process. After 40 years in the wealth-management industry—including 25 years as an advisor and years advising some of the industry's largest teams—I have rarely seen a recruiting negotiation produce this degree of leverage. It required a perfect mix of timing, discipline, and strategy.

Four Years of Tire Kicking

Pham explored virtually every conceivable alternative. There were meetings, analyses, negotiations, and countless conversations with competing firms and platforms. We even began to question whether he would ever leave Merrill.

That may have been one of his greatest negotiating advantages. Pham never behaved like an advisor who needed to move. He was genuinely prepared to remain at Merrill if another firm didn't give him compelling reasons to leave.

It turned out to be a key point of leverage and resulted in more fruitful negotiations. Once a prospective employer believes an advisor has emotionally committed to leaving, the discussion shifts from "What will it take to win this team?" to "What will it take to close them?"

Wells Fargo Builds an Extraordinary Deal

Eventually, Wells Fargo emerged as the frontrunner. It went a very long way to accommodate Pham and his team.

The firm put together an unusually attractive package involving front-end and back-end economics, staffing, office space, and other accommodations designed specifically around the team's business.

One of the most significant concessions involved the asset hurdles associated with the offer. The practice had approximately $1.2 billion in client assets, yet the proposed structure dramatically reduced the asset level against which certain transfer hurdles would be measured.

That is an often overlooked aspect of recruiting offers that can make a difference of millions of dollars. Recruiting packages are often advertised by their headline percentage, but what ultimately matters is how likely an advisor is to actually collect the back-end awards.

Wells' move would have sealed the deal for most advisors. But not Pham. He still didn't show his cards.

UBS Needed the Win

Meanwhile, UBS was in the midst of rebuilding its U.S. recruiting effort. The firm had hired recruiting chief Ben Firestein, reshuffled portions of its management structure, and introduced an aggressive recruiting package designed to reestablish itself as a major destination for elite advisors.

Pham and Yip were perfect candidates to show a recruiting win in a key market.

And now, Pham was entering negotiations with a compelling offer from Wells already in his pocket.

UBS ultimately provided additional economics and concessions that went beyond an already aggressive Wells proposal.

The clearest illustration may be the treatment of the team's assets.

Although the practice managed approximately $1.2 billion, UBS credited the team with only approximately $575 million for purposes of certain asset-transfer hurdles, according to reports.

This means the team could potentially satisfy a $575 million hurdle while transferring less than half of the assets associated with the practice it was leaving.

The complete package remains confidential, but the asset treatment alone demonstrates how far the negotiation had moved beyond a conventional recruiting offer.

Another consideration was the length of the commitment. While UBS has been offering recruiting deals that stretch as long as 16 years, Pham and his team negotiated a substantially shorter term, making the package more attractive beyond the headline dollars.

The Most Important Number Isn't Always the Headline Number

Managers like to pitch the eye-catching numbers: 300%, 400% or even 500% of trailing-12 revenue. It’s important that advisors don’t get lost here with dollar signs in their eyes.

There are key questions that can cause the actual value of that deal to fluctuate substantially:

• What revenue number is being credited?
• What assets must actually transfer?
• How are growth hurdles calculated?
• When are back-end awards measured?
• What happens to deferred compensation?
• What staffing will the firm provide?
• What office and T&E commitments are included?
• What exceptions is the firm willing to make?
• And, perhaps most importantly, how achievable are the hurdles attached to the headline economics?

In some cases, it makes more sense to take a nominal haircut on the total number in exchange for a package with back-end awards that are easier to achieve.

Or, start with the headline number and then negotiate over the details. Pham's negotiation attacked both sides of that equation. The economics increased while the barriers to earning them decreased.

Why the Process Worked

Pham had something many advisors unintentionally surrender too early: optionality.

Wells believed it could win him. UBS believed it could win him. Merrill remained a legitimate third option because Pham was genuinely prepared to stay. No one knew precisely what he would ultimately choose.

That created competitive tension without eliminating the advisor's credibility.

“Wells made an extraordinary effort and appeared positioned to win the team,” said Roger Gershman, CEO of The Gershman Group. “UBS recognized the importance of the opportunity and ultimately went even further. After four decades in this industry, it was one of the most aggressive and creatively structured recruiting negotiations I have ever witnessed.”

There’s an important distinction between creating leverage and bluffing. In some cases it’s better to look before you know you want to leave, not once you have to get out. Because Pham was comfortable remaining at Merrill, it meant he could effectively shop patiently for the right offer and fit. That's different from manufacturing artificial competition.

The deal also shows the value of having a recruiter involved. The hiring firm pays the recruiter’s fee, which is not deducted from the advisor’s transition package. Here, the recruiter worked alongside the team through repeated rounds of negotiations, pressing management on the offer and contract terms while helping the advisors preserve the relationship with their future employer. That ability to push for concessions mattered in a process that took years to complete.

The Lesson for Advisors

Of course, not every advisor has four years to spend interviewing firms. Nor will they walk into the perfect storm of finding a firm right at the time willing to pay up for a recruiting win.

There is still a fundamental takeaway: The structure of the process can materially affect the outcome of the deal.

Advisors frequently weaken their negotiating position without realizing it. They fall in love with a firm too early. They tell a manager they're ready to leave. They negotiate with only one serious bidder. They allow a prospective firm to dictate the timetable. Or they focus exclusively on the headline recruiting number rather than the assumptions underneath it.

Pham did virtually the opposite. By the end, UBS was determined to show it could out-compete Wells Fargo for Pham’s team. That’s a unique process and produced a very different deal.