The Biggest Deal May Not Be The Best Deal
Over the last two months, I’ve written about consolidation reshaping the wealth management industry from the top down, and how independent financial advisor succession planning is reshaping it one practice at a time. This month I’d like to zoom-in on some of the recruiting dynamics that exist in our industry and a key decision an individual advisor actually faces when considering a change of firm affiliations. Below, you will learn why the largest offer presented to an advisor considering a new firm is almost never the strongest long term financial decision and why it often comes wrapped in a forgivable loan.
The Numbers Keep Getting Bigger
Recruiting economics in this industry have escalated into something close to an arms race. LPL alone reported roughly $3.68 billion in outstanding recruiting loans in 2025, with nearly $3.3 billion of that structured as forgivable, up more than 1,300% since 2018. Wirehouse packages have followed a similar trajectory, with top-tier offers now regularly reaching 300 to 400% of trailing-12 revenue typically amortized as a forgivable promissory note over seven to nine years. These are not modest signing bonuses. They are some of the largest personal financial transactions many advisors will ever enter into, and they deserve to be evaluated with the same rigor an advisor would apply to any client’s major financial decision. This is where you need to take a step back and ask yourself, how are these deal structures in everyone’s best interest and who is really funding and paying for them?
What A Forgivable Loan Actually Is
A forgivable loan is a real loan. The firm advances a lump sum and a portion is forgiven each year, typically on a schedule running seven years or longer. Loan “forgiveness” is contingent on the advisor continuing to do business with the firm, hitting production/growth targets, and of course paying annual expenses. Leave early, and the unforgiven balance comes due immediately, plus interest. The portion forgiven each year is also taxed as ordinary income in the year it’s forgiven, which can create a meaningful tax bill layered on top of the retention handcuffs. None of this makes a forgivable loan a bad instrument. It is simply debt, financed against an advisor’s own future production, in exchange for liquidity today and a long runway of reduced freedom.
Why The Size of the Loan Can Work Against You
The size of a forgivable loan is usually a signal, and it’s worth reading correctly. A firm offering a very large forgivable package is not simply being generous. Firms can justify these packages by pricing in years of reduced advisor payout via increased expenses, via bank sweep programs on cash balances or revenue sharing arrangements with product providers to name a few. The loan has to be recouped by the firm somehow, and it is rarely recouped from the firm’s own margin. A useful rule of thumb: the bigger the “up-front” amount, the more ongoing economics are usually designed to pay for it. Advisors who focus on the up-front number without running multiple true economic comparisons projected over the full term of the note and beyond often find, years down the road, that the “bigger” deal was actually quite smaller on a present-value basis.
There is also an optionality cost that advisors often overlook. A forgivable loan is a bet that the firm you’re joining today will still be the right firm for you and your clients in five or seven years from the
time you take it. Platforms change, leadership turnover, firms are bought and sold, service levels deteriorate, fees and expenses increase, etc. An advisor with no outstanding forgivable note can freely move firms and take their clients with them if their current firm implements any changes that introduce new significant challenges or inconveniences the advisor does not wish to continue with. Talk about true independence. An advisor several years into a multi-year forgiveness schedule must weigh that same decision against a claw back of the unforgiven amount. The loan doesn’t just cost money if you leave early; it takes your “leave-early” option off the table entirely.
Furthermore, a large outstanding forgivable loan balance often subconsciously shapes the decisions an advisor makes. It becomes easier to remain quiet about platform issues or increased expenses, defer a client-first move, or tolerate a shrinking product shelf…not because it’s the right call for the business, but because the existence of your forgivable note makes the idea of leaving for a better partnership seem like too much to unwind. It’s a hard thing to put a number on, but it’s a real cost, and it compounds the same way the loan itself does.
What The Math Actually Rewards
None of this is a case against forgivable loans as a category, or a case against advisors who choose them. Everyone’s circumstance is different. That said, advisors deserve to make any trade-offs with full and complete information, not with just the largest number on the page standing in for the whole analysis. A useful deal evaluation looks past the headline figure to the net payout percentage over the life of the deal, the length of the lock-up and forgiveness schedule, the tax treatment of the forgiven amount each year, and what the platform is actually contributing in exchange for the reduced freedom, whether that is real infrastructure and support or simply capital.
A Better Way
Picture a model that provides a conflict-free and transparent relationship between the firm, the advisor, and the end client that is designed towards a mutually beneficial long-term relationship between the parties. One that may never have to be revisited over the course of the advisor’s career. Although I realize that a transition support package is important and necessary, structuring them in a way that enables advisors to operate their practices truly independently and free of the weight of lock up agreements, production requirements, product choices, and other encumbrances that tend to be tied to traditional forgivable loan agreements is the future. For those who have done the required homework, a relationship with your firm where the foundation is not propped up by a forgivable loan can prove to be the “better deal” all the way around.
