Recruiters Should Disclose Compensation Like Advisors Do
Advisors have to disclose how every dollar comes into the practice. It doesn’t necessarily mean that the recommendations that pay advisors more are wrong for their clients. It just means you should consider compensation as one data point to weigh the advice you're getting. That standard exists to surface conflicts and protect clients.
Now, let me ask the question that has gotten me in trouble recently… Why on earth do independent recruiters not follow the same standard? I’ll be the first to tell you that the compensation swings are even bigger than anything advisors interact with.
For example, if a handful of firms are willing to pay a recruiter like me 12-14%, and a smaller firm might offer me 6%. That can be enormous. To make this extremely clear, here’s an example from a $450M AUM team doing around $4M in revenue that we moved last month.
Firm A offers me 12%. $480K in comp to the recruiter.
Firm B offers me 6%. $240K in comp for the recruiter.
Does it bother you at all if your recruiter won't recommend Firm B, even if they might be a better fit, because they will lose out on a quarter million in revenue?
Now, I’m a classic capitalist. I believe in everyone’s right to make as much money as they fairly can. That said, it’s a massive conflict of interest if it’s not disclosed. What’s more, I know more than a few recruiters who will only recommend firms that pay them a minimum percentage for their fee, often north of 10%.
Again, you can charge whatever people are willing to pay, but can we at least be honest about our fees the way our advisors have to be?
I’ve actually had people in my space push back when I say this out loud, which only proves the point. If transparency wrecks the model, maybe the model is the problem.
My word of warning to advisors is that this is not a norm likely to change anytime soon, so the best you can do is protect yourself and ask questions.
What to ask verbatim:
How does each firm compensate you for introducing me? (ask for each firm's introduction)
What’s the percentage or structure for each? Is it a flat finder fee, tiered percentage, equity, or something like soft-dollar support?
Do you have compensation minimums or preferred partners where you’re paid more?
What work do you do beyond an introduction? Diligence, modeling, transition planning?
What a good answer sounds like: short, specific, and written. If a recruiter can’t summarize their compensation by firm in a paragraph, you’ve learned something important. If they say compensation is irrelevant because they’re a “fiduciary,” you’ve learned something else. No accountability for the use of the word "fiduciary" among recruiters…
Why it matters: you’re not trying to nickel-and-dime anyone. You’re trying to eliminate blind spots. Clear incentives create cleaner recommendations. That’s the same logic you use with your clients.
A simple policy for cleaner decisions: ask for a one-page Comp and Conflicts Summary as soon as real options hit the table. File it with the deck and term sheets. I'm 100% in favor of everyone making as much money as they are able, but awareness of this question tells you a lot about the recruiter you're working with.
If your recruiter’s best argument against disclosure is “trust me,” trust yourself instead.
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You might have guessed by now, but full compensation transparency is one of the table stakes of working with me. What's more is that while many recruiters only make introductions and then leave it to the firms to walk you through their pitch process, my approach is much more thorough, and I stay by your side as you vet and reflect on what you really want.
So much of the learning curve, as you are searching for new firms, happens once you are in the game and thinking through your options. For the same fee as someone else who just makes an introduction, you have someone who facilitates and accelerates your search and transition process.
A call with me is free, fully discreet, and one of the best investments of time you can make in your business.