What is a Forgivable Loan?

Definition: This is the term frequently used to describe the upfront “bonus” money a financial advisor might be paid by a broker-dealer and/or RIA when the advisor joins their firm. It is also used at times to describe a “retention bonus” an advisor might receive for staying with a firm, post the firm being acquired.

The terminology is factually incorrect, though, as such loans aren’t technically “forgiven” over time. Instead, the firm who gave the loan to the advisor makes payments on the loan on their behalf.

When used in an RIA context: “The financial advisor received a forgivable loan when they transitioned their practice to the wirehouse.”

See also: Episode 32, Episode 94, broker-dealer, wirehouse