The cost of moving

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ocnj's picture
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I am a wirehouse veteran who has worked at the same firm for 20 years and has never moved.   I like my office and I like my manager and I am reasonably happy with my firm, but I sometimes wonder if I'm missing the boat by not taking a check to go elsewhere. But the math doesn't make sense to me. Let's say I gross 500k (it's really more like 550k, but let's keep the math easy) and my payout is 40%. So my net is $200,000 a year. Let's say another wirehouse offers me an upfront check equaling 100% of my gross to sign a nine-year deal. At first glance that $500,000 looks pretty tempting. However, I've always heard that, on average, 80% of your book moves with you. So if I go through all the hassle of moving, I'll be grossing $400,000 a year and netting $160,000 (actually probably even less, because the payout would be less on 400k). My plan is to work another 20 years, so that means I'm sacrificing more than $800,000 of future pay to get an upfront check for $500,000. Of course, I could invest the $500,000 and grow it over the years, but by the same token the $100,000 in assets I leave behind would have grown over the years, giving me more and more gross down the road.   So my question is, given that I'm happy where I am, what kind of an offer would make moving worth my while? Or am I missing something, and the offers of 80% and 100% of my gross somehow make sense?

FABroker1999's picture
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Joined: 2009-03-08

A move to independence.

maddog's picture
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iceco1d wrote:A move to indy, or perhaps even a regional like Stifel (where your payout would increase) would make sense.  Plus, you could wait and take a bigger deal once they come back in a few years (they were over 200% for awhile).  But, if you are happy, I'd stay put. 
 
Isn't Stifel payout a grid similar to WFA?

BigCheese's picture
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Joined: 2009-07-13

You are giving up 15OK a year staying at your current firm, if all numbers were equal. We know they aren't and I would argue the 80% figure, mine was more like 65% of AUM. I wasn't a 20 year vet when I moved so it might very well be 80% for you.
If you grossed 400K under your scenario and net 70% which I do at LPL (gross commission-expenses before personal taxes) you would net 280K, an increase of 80K per year. If you work 20 years that is a $1.6M decision at 0% growth rate. Or if you want to get really agitated, that's a $3.5M decision (at 7% growth rate) over your lifetime. It's money you never had but would have if you went the independent route. And that's only one benefit of independence.
 
How much do you really like your manager and your firm now?

trailman's picture
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Joined: 2009-01-21

Bigcheese points make sense!  Also, have you compared exit strategies?  As an independant, you can sell your book when you retire for 200% of your trailing 12 if it is transactional and 300% if it is fee based.  It beats a gold watch or retiring from a wirehouse.

HenryTryoone's picture
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I think the industry average for independents is about 65% payout after local expenes.  So if you move from about 40% to about 65% that is far better over time than moving to another wirehouse or staying put.  However, the best reason to move to the indy world is for more control over your life, a benefit that far out weighs the financial benefit in my experience. 

BigCheese's picture
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2X for transactional? Maybe in a great economy. I thought it was closer to 85 bps-1.
 
In my opinion, the freedom, the tax advantages (which are many if you have a good accountant), the ability to sock away double what an employee can defer to retirement, the ability to have or don't have employees (and their baggage not to mention expense), an asset that builds net worth are just a few of the benefits.
 
The drawback is you have to demonstrate the ability to provide exceptional service, and provide all the tools that a client would expect from a firm with many employees.
 
Lastly, in my opinion, you have to think like a business owner.
 
Working for a wirehouse or regional is much different than working independently. From my perspective, the more seasoned reps tend to fit the indy model better. 20 years with a wirehouse, that's impressive.

Squash1's picture
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Joined: 2008-11-19

Agreed.. I have heard 75-100bps for transaction vs 200bps for fee..

trailman's picture
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Joined: 2009-01-21

OK, Fair enough. 100 to 200% of your trailing 12 when you retire.  You are getting that big check at the end instead of having someone own you for the next 9 years!

B24's picture
B24
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Joined: 2008-07-08

Let's not forget a couple of the risk factors here:
 
1. That a high % of his clients move with him
2. That he's happy at the new firm, and can get everything he had at his old firm.  What if he HATES his new BOM?

BigCheese's picture
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If he is indy, he would then hate himself...

B24's picture
B24
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Yup.  I was referring to a move to another wire for a check, as he had originally proposed.  I can't imagine disrupting a really good lifelong business for a 500K taxable check.  I WOULD, however, do it to go indy.

Ron 14's picture
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Joined: 2008-07-10

B24 I got a bit excited when I saw the topic. I thought you were moving one step closer.

Roadhard's picture
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Net $200,000 in a bad market--not bad--moving you could move only 50 to 60% of you're clients too--happen to me when I went Indy!  My old BD really went after my clients to stay!
 
It is a risk--but I am much more happy as an indy!  Gook luck either way!

san fran broker's picture
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iceco1d wrote:trailman wrote:
 
you can sell your book when you retire for 200% of your trailing 12 if it is transactional and 300% if it is fee based.  It beats a gold watch or retiring from a wirehouse.
 

 
Those are pretty aggressive numbers from what I've seen.

300% of the fee based production that was actually subsequently generated over the next year seems reasonable. Not cheap, but reasonable. If you've got a book full of trained seals, then I'd pay it in tranches, but I'd pay it.

san fran broker's picture
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Roadhard wrote:Net $200,000 in a bad market--not bad--moving you could move only 50 to 60% of you're clients too--happen to me when I went Indy!  My old BD really went after my clients to stay!
 
It is a risk--but I am much more happy as an indy!  Gook luck either way!

I agree, but would add one thing -
Have you ever heard of anyone going back from Indy?
Nobody who went independent that I've ever talked to regretted the decision. I would assume that any wirehouse manager would be happy to recruit me and my clients, but I would never go back. It would certainly be my "fall back" if for some reason I couldn't run my practice (a bunch of clients deserted me for some reason or something).
It's not really the fact that you don't have to deal with the ingrate morons in management, bear witness simultaneously to tremendous waste and stupid cheapness, but the fact that after you 'cover your nut' - at least as an RIA - your payout is 100%.

B24's picture
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Ron 14 wrote:B24 I got a bit excited when I saw the topic. I thought you were moving one step closer.
 
No, I'm not even close.  I've got a long way to go if that were to happen.  Unless I start sucking wind (not sucking Wind) and can't hit Jones goals, I wouldn't consider going indy until I had at least 20mm in annuitized biz that I knew would move with me.  I just have no need to at this point.  I am too busy worrying about finding new biz to worry about starting a new biz.  And if I did it, I don't think I would go solo.  I would prefer to have a team.  So I would have to develop that first.  So don't hold your breath (unless YOU'RE sucking Wind).

Ron 14's picture
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Well put and well played

B24's picture
B24
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That's how I roll!

Independent's picture
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The most important thing I heard from you was that you were happy where you are.  There are so many people on these forums looking on the other side of the septic tank for greener grass.  I would stay where you are. 
 
Cutting for a wirehouse check just handcuffs you to what will probably be a neutral financial move unless you get additional perks beyond the initial check, such as your own personal sales assistant.  If  you consider the independent route get that book from Cantella at www.cantella.com   

Sportsfreakbob's picture
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Joined: 2008-08-24

Its already been said, but i'll at my two cents anyway, WTF. It makes no sense to me to move from a wire, especially if you are happy, to another wire. You are owned. You cant predict the future, so whatever check you get, you better put it in the bank and make believe it doesnt exist. Because you have no control over what the new wire will decide 3 years from now about the grid, or all the other myriad ways they pay you. So you may need it to pay them back. Then you have to go thru the whole transition thing all over again.
 
If you consider indie, thats another story. The mystique of the wirehouse is gone...poof...just like that.
I left a wire 3 months ago to go indie. My clients had no problem with it. Did i have to explain it to a few folks? Sure. But they got it. Over 90% came with me. I have over 100% of the assets i had before I moved (with market appreciation).
For me it was about lifestyle as much as about money. Like another poster said, i will get my big check, when i retire. And nobody will own me.
Make no mistake, indie is not for everyone, and if you are happy where you are, maybe you should stay. I am not touting indie as the answer to all the worlds problems. But it is way more an alternative for a lot of people than it used to be, and more than people at the wirehouses, who are all brainwashed, believe.
 
Wire to wire is for horses, not brokers. It makes no sense.
To the original poster - if you are interested, PM me, i am traveling but will be back next week, and i'll be happy to share my experience with you, FWIW., I got an enormous amount of help and support from these forums during my decision making process and if i can help in any way, let me know.

Lew Ashby's picture
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Joined: 2009-01-13

Sportsfreakbob wrote:Its already been said, but i'll at my two cents anyway, WTF. It makes no sense to me to move from a wire, especially if you are happy, to another wire. You are owned. You cant predict the future, so whatever check you get, you better put it in the bank and make believe it doesnt exist. Because you have no control over what the new wire will decide 3 years from now about the grid, or all the other myriad ways they pay you. So you may need it to pay them back. Then you have to go thru the whole transition thing all over again.
 
If you consider indie, thats another story. The mystique of the wirehouse is gone...poof...just like that.
I left a wire 3 months ago to go indie. My clients had no problem with it. Did i have to explain it to a few folks? Sure. But they got it. Over 90% came with me. I have over 100% of the assets i had before I moved (with market appreciation).
For me it was about lifestyle as much as about money. Like another poster said, i will get my big check, when i retire. And nobody will own me.
Make no mistake, indie is not for everyone, and if you are happy where you are, maybe you should stay. I am not touting indie as the answer to all the worlds problems. But it is way more an alternative for a lot of people than it used to be, and more than people at the wirehouses, who are all brainwashed, believe.
 
Wire to wire is for horses, not brokers. It makes no sense.
To the original poster - if you are interested, PM me, i am traveling but will be back next week, and i'll be happy to share my experience with you, FWIW., I got an enormous amount of help and support from these forums during my decision making process and if i can help in any way, let me know.

Don't bet on ALL of us being brainwashed.  Maybe that's how it used to be, but not the folks in my office.  Also, don't even try to compare the services available at indies versus a wire.  It's not even close, and you know that.  This is probably what keeps all of us "owned" by the wires for so long.
 
You're right about the mystique thing, though.  I've never felt like there was anything magical about being at a wire, nor have I ever felt better than anyone else.  And I have to admit that when indies can provide equal or better products to my clients as a wire can, I will certainly consider making a change.  The benefits would then far outweigh the negatives.  But please don't paint us all with a broad brush.
 
LA

Takingnames's picture
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Joined: 2007-11-09

 
You can leave behind what you don't want.
You can change up your model with the best clients and be freed up to attract more of the higher quality clients.
You might be able to go to a firm with better brand recognition, etc.
You could double your income because you actually renew your commitment and are invigorated.
 

Lew Ashby's picture
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Joined: 2009-01-13

iceco1d wrote:Lew,I agree that saying all wire reps are "brainwashed" is a bit too broad of a stroke...but I truly think you are wrong in regards to what products & services indies can and cannot offer.  Can you elaborate on exactly what you feel that an Indy CANNOT offer, that you CAN @ a wire?

The big one is alternative investments for me-- hedge funds, managed futures, etc.  Not all indies can get them.  Those that can get them may not have the banking services that a wire has.  Also, my clients like simplicity.  Being able to consolidate almost anything, including their banking, cards, points, annuities, life insurance, stocks, bonds, statements, etc is very attractive to them.  Yes, I know indies have card programs, banking products, etc, but (correct me if I'm wrong) they aren't nearly as robust as the wires' programs.  Also, we have the world's largest trading floor, which virtually guarantees best execution for large trades or trades in thinly traded securities some knucklehead transfers in.  Our financial planning software is the best on the street.  The integration between software products is also better at a wire.  The financial planning software talks to the CRM software, and the they both are integrated with the trading platform, etc.
 
That doesn't mean that the indies aren't catching up, though.  And one day, when they do, I'll be shopping.  One thing that intrigues me is the new Pershing i-phone style software package.  This is first platform that allows the indie to select his or her own app (like the i-phone) and have it integrate with all the other apps.  Kinda like the wirehouse platforms, but with the FA being able to select which off the shelf financial planning software to use with whatever CRM tool he or she wants to use, etc.  And they are all compatable and communicate with one another.  When they have that up and running, look out.  It will set the new standard.
 
Lastly, for big accounts, name recognition still helps close the deal.  I'm not talking $1-5 million dollar accounts.  I'm talking $5-100 million relationships.  The endowments, the corporate strategic reserves, the family office.  I admit, my business isn't entirely comprised of these types, but I do have them, and I don't feel that they would be as comfortable in the relationship without the large firm backing me.  At least I'm man enough to admit it.
 
LA

BigCheese's picture
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Lew-
 
You have highlighted all the greatness of wires.
 
Now I am indy and will go toe-to-toe with you on every point. Your day of reckoning is much closer than you think. Our financial planning software is the best on the street. For a minute I thought you might be with Jones!
 
I'll compete with your 150 page boiler plate report anyday. Do you have account aggregation yet( updated nightly). Do you have an electronic vault to hold all of your clients documents that centers of influence  can have constant access to if needed? Someday we will all have the same tools, and it will come down answering the phone and value added services.
 
As an indy I have been incorporating alternatives for the last two years. Do you have non-traded REITS at your disposal? Nobody has everything and for you to assume that you are the best...lah-ti-dah reminds me of the Jones newbie who thinks that their operation is different. And at a wirehouse, today, you have been stained by your manangement no matter who you work for.

BigCheese's picture
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Oh one last point. I am closing a 5M deal next week competing against Mother Merrill and Jones. And you know what...they want someone without conflicts of interest, totally indy.
 
 

Squash1's picture
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Joined: 2008-11-19

I agree with Lew, that when you start looking at accounts over $10MM, that the wires have an advantage, but then they also have to compete with Hedge Funds and RIA platforms.

As far as software, rumor has it that some of the software is the same as the stuff on the street(Money Guide Pro) just recalibrate(read Branded) for their company.

RIA platforms have access to boatload of technology, TD, Schwab, all have great technology.

JoeNatlanta's picture
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Joined: 2008-12-15

the numbers are easy...at 100% upfront, it doesn't make sense. At 250% or better, it does - but unfortunately you missed those days. I think it will be a long time before we see those numbers for anything but top quintile 1 guys...

Lew Ashby's picture
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Joined: 2009-01-13

Thanks for the info, ice.  I have a friend at RJ, and he likes it a lot there.  It doesn't hurt that Jeff Saut called the bottom in March-- no really, he did.  Art Cashin is a great guy, but he can't lay claim to that one.
 
Like I said in previous posts, I am definitely keeping an eye on the indie platforms.  I think they are gaining ground every day.  The bottom line right now for most of us with decent-sized, established practices is inertia.  It is just one big PAIN IN THE ARSE to change firms.  I've done it, but with a practice half the size it is now.  The day I move to another firm will be the day that I've exausted all other avenues at my current firm.  Hopefully, it will never come to that.
 
UBS has its problems, but the problems don't really hurt my business at this point.  One day they might, but not right now.  I really like most of the technology, banking, investment, and financial planning, statements, etc.  Every platform has improved since I came here, except for the CRM software.  But we've even been able to leverage the current platform to work for us.  And they plan on upgrading it in 1Q 2010.
 
So we keep plugging along every day, doing the same thing you're probably doing, and hoping things get better in our beaten-up industry.
 
LA

Lew Ashby's picture
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BigCheese wrote:Lew-
 
You have highlighted all the greatness of wires.
 
Now I am indy and will go toe-to-toe with you on every point. Your day of reckoning is much closer than you think. Our financial planning software is the best on the street. For a minute I thought you might be with Jones!
 
I'll compete with your 150 page boiler plate report anyday. Do you have account aggregation yet( updated nightly). Do you have an electronic vault to hold all of your clients documents that centers of influence  can have constant access to if needed? Someday we will all have the same tools, and it will come down answering the phone and value added services.
 
As an indy I have been incorporating alternatives for the last two years. Do you have non-traded REITS at your disposal? Nobody has everything and for you to assume that you are the best...lah-ti-dah reminds me of the Jones newbie who thinks that their operation is different. And at a wirehouse, today, you have been stained by your manangement no matter who you work for.

Oh yeah?  Well last night, I stayed at a Holiday Inn Express.

ocnj's picture
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Joined: 2009-08-05

JoeNatlanta wrote: the numbers are easy...at 100% upfront, it doesn't make sense. At 250% or better, it does - but unfortunately you missed those days. I think it will be a long time before we see those numbers for anything but top quintile 1 guys...

Who besides UBS was offering 250%? (And if UBS was still offering 250%, would you want to go there?)

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