Question for Indies...PAYOUT

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maverick/goose's picture
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Joined: 2007-05-27

For those of you that have been independent for over 1 year.  Can you share with the board your payout both before local expenses and afterwards.
For example, all platforms tout 85-90% payouts, but we all know that is not what you end up with since you have to pay for things like E&O insurance, clearing charges, platform fees, etc.  After all of that in my calculations I come up with approx. 73% before local expenses.
After local expenses (including rent, staff, healthcare, 401k, postage, etc) my numbers come down to approx. 55%.  (I will have a large staff, thus the 55% number may seem a bit low to you).
Is this about what you others are seeing....
Thanks in advance.

Dust Bunny's picture
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Joined: 2007-05-07

That seems about right.   I'm probably at about 65% net net.
Remember though, as a self employed indepenent, those expenses are all tax deductible bottom line expenses, depending on how you structure your business.   You can also look into a S Corp to minimize the self employment taxes.
 

pghkid's picture
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Joined: 2007-03-27

The firms you are looking at should be able to provide you with a Proforma based on your current business production, business mix, tickets dropped, etc.  Then they will take into consideration the E&O insurance, bonding fee, etc.  That's your net before your local expenses.  They can then either plug in average costs of running an office or get more specific based on information you provide them based on what you expect locally.  It usually is pretty accurate. 

OldLady's picture
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Joined: 2006-11-19

Bunny is right.  There are substantial tax advantages to owning a business.  My practice bought my car, so I was able to use all pre-tax dollars to pay for it (although it has to be amortized, so the benefit is spread over a number of years rather than all at once), but that beats the pants off of having to pay personal income tax and FICA in order to get the funds to buy the car. 
All those out-of-pocket business expenses your BD doesn't cover and you can only itemize the amount over 2% of your adjusted gross income (and that still only means there's a partial tax benefit), now you can have the business fully pay (business meals are the partial exception, I think -- I'm not a CPA, so someone with more tax knowledge may be able to clarify here). 
My husband is an employee -- I pay him a small, small salary to be our "tech" guy.  But as an employee, the business can pay to send him to my firm's annual meeting (they pay my way), he attends the meetings relevant to technology, and can sit by the pool or go do fun things, pre-tax rather than paying with post-tax dollars.
Don't underestimate the tax advantages to make your net go further.  I would agree that 55-60% sounds about right for me (I also have a large staff).

maverick/goose's picture
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Joined: 2007-05-27

Thank you Bunny and Old Lady (love the "handles" by the way).  This is good information.  I am somewhat aware of the tax benefits of being independent as well.  I have a couple of friends that went to FiNet and they talk extensively about the tax benefits.
I forgot to mention in my original post that while the net,net payout is approximately 55%, the equivalent at my current firm is actually about 33-34%.  My official "payout" is 41% but after deducting sales assistant pay, marketing expenses, business travel, healthcare, etc. it works its way down to 33-34%.
So, I am looking at an increase from 34% to 55%....that is a pretty significant increase.
Would love to hear from others on this as well.
Thanks.

CIBforeveryone's picture
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Joined: 2005-07-12

I get 82% net of gross from RJ after ticket charges. The net net is easy to calculate when you take out your fixed expenses from that. The 82% has been fairly constant for me.

maverick/goose's picture
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Joined: 2007-05-27

82%?  Wow, that is pretty impressive.  If your optimal payout is 90% with RJ - how do you keep it at 82% with all of your E&O charges, ticket charges, admin charges, platform fees, etc?
What is your payout after your local fixed costs?
82% is the highest that I have heard of.  Care to share what type of business  you do?  Funds, 3rd party, annuities - mix of everything?
TIA

CIBforeveryone's picture
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Joined: 2005-07-12

That is just after tik charges. My business is mostly fee-based and mutual fund trails now. E&O/tech charge from RJ is $250 for me, and $50 for my employee. That is not calculated into the 82%. Since I have been converting to fees over the last year, I do not have a good representation of net net after fixed costs yet, as I have been forgoing all up-front commissions in favor of future fees or trails.
 
 
 

stokjock's picture
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Joined: 2007-07-03

Maverick/goose-
I'm curious if you've looked at going the RIA route versus joining an Independent B/D? If your business is primarily fee based discretionary management that model may be a good fit for you.
 

braveheart's picture
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Joined: 2005-01-06

Maverick/goose,
pghkid is right, b/d's should be able to provide you with pro forma income info. 
Also, I have a hypothetical income/expense sheet where you can plug in the numbers based on your situation.  Feel free to PM me and I will email it to you.  Keep in mind, that some expenses will be determined by the b/d (e&o, ticket charges, tech fee) while others will be controlled by you.  Typically, the biggest variables tend to be office expense and support staff.

maverick/goose's picture
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Joined: 2007-05-27

Stokjock - Yes, I have considered that and am reviewing it in detail now.  The problem for me thus far is that I still do about 25% commission style business and that is a big chunk to give up.  Of course, I think I could switch a lot of that over to fee based.  I am a little concerned with the amount of work that goes into an RIA.  My fear is that I will be spending more time managing the business operations vs. managing the assets under mgmt.  Most likely, I will make the move to the indy channel first and then someday jump to the RIA.  Thanks for the input.
 
braveheart - yes.  You and pghkid are both correct and I have received the pro forma sheets from several platforms.  Thanks.

stokjock's picture
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Joined: 2007-07-03

Understood. Not sure how much more work their really is as I think perception and reality are very different here. My take is this- if you have over $100 million in assets at 1% RIA can usually make a bit more sense. If you are a smaller advisor the IBD model can amke sense. It's always tough to switch twice.

illinoisrep's picture
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Joined: 2007-01-09

Three friends who are with LPL and doing about $500-$600k showed me
their runs which indicated that they were receiving about 85% of GDC before
branch expenses. Branch expenses are going to vary widely depending on
your business and part of the country you are located. The biggest
expenses are going to be payroll for staff and rent which will be cheaper
here in the midwest than on the coasts. They also report that the tax
benefits are significant.

maverick/goose's picture
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Joined: 2007-05-27

They are lying to you if they claim that their payout is 85% before local (branch) expenses.
Think about it....the payout is approximately 90% to start with (maybe a little higher based on production, but I doubt they do all production at the 90%+ grid level - so let's just go with 90%). 
They would be claiming that, platform fees, admin fees, ticket charges, clearing and execution fees, etc are all less than 5%.
I don't buy it.
I do more business than your friends and my pro-forma from LPL wasn't even above 80%.

troll's picture
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Joined: 2004-11-29

maverick/goose wrote:They are lying to you if they claim that their payout is 85% before local (branch) expenses.
Think about it....the payout is approximately 90% to start with (maybe a little higher based on production, but I doubt they do all production at the 90%+ grid level - so let's just go with 90%). 
They would be claiming that, platform fees, admin fees, ticket charges, clearing and execution fees, etc are all less than 5%.
I don't buy it.
I do more business than your friends and my pro-forma from LPL wasn't even above 80%.What about:Fixed life insurance, which is paid at 100%Higher payouts for higher production-which can be acheived more quickly in a branch with multiple producers.  This can lead to payouts on fee based business of 91 or 92 percent or higher.

bspears's picture
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Joined: 2006-11-08

My net after fees for my running two week period at LPL, is running 79%...but, I have several acat fees being charged against my net.  Pull those out and I'm running a little ahead of the 85% net-net. Am I missing something? 14583.22 Gross/13367 net..11896net-net acat fees, 12991..add acat fees back in...Straight off my current comm statement??? I know E/O hits certain months..but I've only been here since Late Jan...not sure of all fees and when they hit..but this is what its showing? I do ALOT of L share hartford and straight mutual funds/ A/B/C...very little stock transaction, mainly closed ends. No bonds year to date...

troll's picture
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Joined: 2004-11-29

Acat fees are $500? From where?
It costs me $90 to ACAT from Barney.
Jesus! If it costs $500 buck for each account you transfer in... 100 accounts is 50 grand! For your clients to have the privilege of buying crap that you could buy them anyplace?
That can't be right! Am I reading that right?

troll's picture
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Joined: 2004-11-29

Oh Several! Ok, I thought it was just two. oh.. phew, I knew I had to be wrong...

Greenbacks's picture
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Joined: 2004-12-21

I am at 82% after all expenses. 

maverick/goose's picture
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Joined: 2007-05-27

Listen, it all comes down to how you define your "before branch (local) expense payout."
Everyone likes to talk about how high their payout is, but if you compare apples to apples you will find that there are very few (if any) that have a payout of 85-90% before local expenses.
Those that claim you do have that high of a payout, congratulations.

maverick/goose's picture
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Joined: 2007-05-27

I stand corrected.  Apparantly there are several practices out there that have 85%+ payout before local expenses.  My business style/philosophy doesn't allow for that.
Maybe I need to re-think my style!
 

illinoisrep's picture
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Joined: 2007-01-09

My friends who gave me this information showed me their complete runs
for 2006.  We have been friends for many years and they have no
reason to mislead me.  I was suprised that they were doing as well
as they were.

maverick/goose's picture
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Joined: 2007-05-27

Whomit:
The ACAT fee out of Smith Barney is now $90 bucks per account?  Damn.
Aren't most firms $50?
Question for all?  When going indy, did you pay for your top client ACAT fees?  Or was it even an issue?
 
TIA

bspears's picture
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Joined: 2006-11-08

I paid, and will pay all of the transfer fees for 1 year.  I use this obviously for my old clients, but also for my new ones.  I'm guessing I've paid out 10-15k in acat fees since Feb.

Indyone's picture
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Joined: 2005-05-31

I paid to transfer clients...at least those I wanted...

Mucho de Tejas's picture
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Joined: 2007-03-08

Submit the number of accounts you want to transfer and use that in negotiating your transition package. Most b/ds will pay for it.

OldLady's picture
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Joined: 2006-11-19

I paid ACAT fees when I opened up & for 3 months for my old clients.  Since then (7 years) I don't pay ACAT fees.  I just tell them we can move their account(s) without charge, but that their existing firm may have a charge (if I know what it is, I always tell them) to close their account.  Why create overhead expense when you don't need to?

bspears's picture
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Joined: 2006-11-08

I use it to squelch any resistance to the move. You won't believe how many people I've met with who would not move from a bad situation because of a 50-100$ fee. Because I've moved to Indy, I felt the need to cover the costs of their move.  I left, they really didn't have to..and I didn't want them to incur a fee because of it. I may be wrong..but I believe its the cost of doing business and I should make the fee up in the long term.

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