Going At Risk With Clients

Good things come to those who wait

It's very common for us to go at-risk with our clients and wait to get a portion of our fee until the promissory note payments are actually received by the seller.

In commission based services in general, the closer we can get to our client's position, the more aligned we become and the more likely it is that we even marginally-good providers advocate in their client's best interest.

This fee deferral is surprisingly rare among brokers, but I love it. Even (or especially) in a success fee-driven system, we have opportunities for misalignment with our own clients when we're negotiating against the other party.

Is that 1 percentage point swing in note interest really that important?

Is that deferment clause a realistic threat?

In a perfect world, brokers would act in perfect, fiduciary harmony with their clients, but we know that unfortunately isn't always true. The industry would be better as a whole if we shifted more in this direction.

But here's the secret: it isn't all altruism.

1. Deferring a portion of consideration and our fee can change (read: delay) and sometimes reduce the tax burden.
2. We can drive value far beyond what a reasonable buyer would pay in cash at closing using notes, rollover equity, and earnouts.
3. We're receiving a little (or sometimes a lot) of interest on the notes.

Not the worst outcome!