Lift-outs aren’t new—but they’re surging. Buyers have gotten smarter about the value embedded in a rep’s book. Reps have, too. And when the broader M&A market gets more competitive by the week, firms are going straight to the source: talent.

I’ve worked through enough of these to know a lift-out isn’t just a mini-acquisition. It has its own challenges—and its own upside—if you handle the prep correctly and structure the deal with tomorrow’s team in mind. Here’s how I think about it.

1) Before You Break Away: Paperwork Wins Deals

The number one mistake I see is timing. Advisors call me when they’re “ready to do a deal,” but they don’t have their agreements. That’s too late. Keep copies of everything you signed—employment agreements, independent contractor agreements, privacy policies, non-competes, non-solicits. You will need them. 

Know who owns the data. From the SEC’s perspective, the firm owns the client. Some independent models disclose in their privacy policy that data follows the rep when the rep leaves (great). But many wire houses that exited the Broker Protocol now have non-solicits with real teeth and policies which prohibit the rep from taking client information without client consent. Taking client data can breach confidentiality. Talk to counsel before you shop for buyers. 

Also: state law matters. A California non-compete outside a sale of a business generally won’t hold; non-solicits are dicey. In other states, you may face more restrictions. Facts and circumstances rule—especially if you originally brought your book to the current firm versus building it there over decades.

2) Structuring the Lift-Out: Choose Your Path (and Your Tax)

We still see the traditional approach: reps are party to the agreement and sell their goodwill to the buyer. Many independents also have a non-licensed practice manager entity—those assets get sold in the same transaction. 

Why do reps like lift-outs? Capital gains potential on the purchase price (versus ordinary income in the old forgivable-note model). But don’t assume: employees have a tougher case for cap gains than independent contractors. Loop in tax counsel that’s fluent in these deals.

Another path: stand up your own RIA first (not as heavy a lift as it used to be with today’s platforms and back-office providers). Transition into your RIA, then sell later through the “traditional” model and pursue cap gains treatment on that sale. I’ve seen variations, but time and again, the model that works cleanly is selling goodwill directly—with the right facts.

3) The Talent Equation: Make Next-Gen Believe (and Stay)

Lift-outs are a talent strategy in disguise, so build the comp architecture for the team you want to retain:

• Phantom plans. Not real equity, but tracks firm value. Pro: simpler governance. Con: generally ordinary income treatment.

• Profits interests (LLCs). No buy-in, granted at or above a threshold value on grant, tied to employment, and can let employees see value grow as the firm grows.

• Real equity. Sell shares; employees write a check with external or seller financing.

Internal transfers used to be common, but firm values have climbed so high that junior talent often can’t afford it. The theme: alignment. Whatever you choose, make sure everyone’s oar hits the water in the same direction. Younger talent also runs on shorter timelines—show near-term and mid-term steps of the ladder (title, responsibilities, comp, ownership) so they can see themselves in the future you’re building.

4) Why This Matters for M&A Outcomes

The market is crowded—over half of RIAs say they’re open to buying. That competition is driving lift-outs as firms go straight to like-minded producers and teams inside banks, wirehouses,  broker-dealers and independent RIAs. If you prepare well (documents, data ownership, state law), structure smart (goodwill sale, cap gains analysis), and design incentives that retain the bench (phantoms, profits interests, selective equity), you don’t just land a team—you build a durable growth platform buyers actually pay for.

Bottom line: Lift-outs reward the prepared. Do the legal homework, choose the right structure, and align incentives. That’s how you turn a hot trend into a high-conviction outcome.