Thanks for your thoughtful post.

I am wondering if any solo and sole RIAs would comment.

At least for some RIAs, the number might look something like this:

30 million under management at 1%, is $300,000. Lots of RIAs carry no E & O, and feel having it just makes them a target. The fiduciary standard is met by proactive compliance, and it takes about $5,000 to use a law firm to set it up. The entity is set up as an LLC.

In this case, all of the other fixed costs, including rent, technology, phone, and an annual audit by the law firm, might be $60,000. Client pays ticket charges. Net $240,000.

Using ETFs at LPL, you payout might average, after admin, ticket charges, etc, maybe 85%, minus similar " other " fixed costs. Net, maybe $205,000.

Not really that big of a deal to set up an RIA. Compliance, without any broker dealer affiliation, is simpler.

Taking the first part of this thread, bluestar brings in 20 million, an extra $200,000, most of it is profit since the fixed costs are paid. He takes 70%, leaving $60,00 plus $240,000 is $300,000 for the RIA firm owner - say $290,000, spend an additional $10,000 on the lawyers.

Bluestar gets $140,000.

Folks I talked to say affiliating with both an RIA and a b/d creates a lot more complexity.

RIA is simple if you are willing to take a little risk. The attorneys will say, the regulars assume you are a scumbag if you are a broker and you need to prove your business is clean. At RIA, you are innocent until proved guilty. Just a comment I heard from the attorneys.

regulators assume you are a scumbag.

[quote=razeurgame]RIA is simple if you are willing to take a little
risk. The attorneys will say, the regulars assume you are a scumbag if
you are a broker and you need to prove your business is clean. At RIA,
you are innocent until proved guilty. Just a comment I heard from the
attorneys.[/quote]



And that mostly comes from the business model and heritage/historical
experience. Plus RIA’s can’t/don’t deal in things like
IPO’s/Insurance/Annuities/LP offerings/TICs various other instruments
with potential for abuse.



For someone who is a broker with a 7, it IMHO makes more sense to start
up with LPL etc. If you want to you can always convert yourself to an
RIA scheme later.

ALLREIT,

Saying that an RIA can/don't deal in things like Insurance/Annuities makes as much sense as saying that registered reps can't/don't deal in things like insurance/annuities.

They can both deal in insurance/annuities if they have their insurance license.  The only difference is that a Registered Rep can earn commissions for variable life and variable annuity products.  An RIA would have to charge fees for advising his clients about variable products.

Your insurance/annuity knowledge really appears to be lacking.  It's fairly obvious that you don't know what you don't know.

[quote=razeurgame]

Lots of RIAs carry no E & O, and feel having it just makes them a target. The fiduciary standard is met by proactive compliance, and it takes about $5,000 to use a law firm to set it up. The entity is set up as an LLC.

Nice try, equating fiduciary standard at RIA with an E & O policy at broker dealer, where to the potential for abuse is rampant. This is a red herring.

Anyway, if your clients fall for your little can opener tactic, so be it. Just more selling crap, akin to your fascination with Bobby.  

[quote=razeurgame]

Nice try, equating fiduciary standard at RIA with an E & O policy at broker dealer, where to the potential for abuse is rampant. This is a red herring.

Anyway, if your clients fall for your little can opener tactic, so be it. Just more selling crap, akin to your fascination with Bobby.  

Nice try, equating fiduciary standard at RIA with an E & O policy at broker dealer, where to the potential for abuse is rampant.

I would actually argue that the potential for abuse is much lower with a broker dealer.  The B/D must approve all trades.  Who approves all advice at the RIA?

Just because an RIA has a fiduciary standard doesn't mean that they always do what is in the best interest of the client.  Just because an RR has a suitability standard doesn't mean that he doesn't do what is in the best interest of the client.

Regardless, we can all expect to get sued at some point and it doesn't make sense not to have E&0.  It also doesn't make sense for a client to work with someone who doesn't have it.

[quote=razeurgame]

Nice try, equating fiduciary standard at RIA with an E & O policy at broker dealer, where to the potential for abuse is rampant. This is a red herring.

Anyway, if your clients fall for your little can opener tactic, so be it. Just more selling crap, akin to your fascination with Bobby.  

[/quote]

"Selling crap." Interesting. Nothing happens in this ecomomy until someone sells something. If it weren't for salesmen, you would be a librarian where they don't sell anything.

If you make a mistake or omission, you pay for it. You either self insure, or you carry insurance with a low or high deductible. The business itself is valuable, it is collateral against any reasonable claims. Analytical clients understand this, clients who just delegate will assess your character.

Obviously you have a particular bias and an agenda which would be proving the superiority of the RIA platform.

I can understand your defensiveness, since you defended Bobby's behavior in another post, something about having fun at happy camp or something goofy like that. Who has an agenda?

Analytical clients want to know that the money is there to pay a claim.  How much value does your RIA have?  It can’t be worth that much and it will be worth considerably less if you are being sued.

Tell me how  a reasonable claim could be worth more than the value of the business.

To get back to the original discussion, you'll see in another post that we are currently looking for 1 or 2 experienced advisers to come over to our firm so I will give you our assessment from a firm standpoint:

We are offering a 60% payout for the first two years of employment, then dropping it to 40%-50% thereafter. After the two years, advisers will be eligible for bonuses on firm profitability and for equity ownership in the firm. The payouts were determined based on the actual work our advisers will do. We have a cold caller setting up appointments (so no prospecting) and we have a money manager handling all research and allocation (so none of that for the adviser unless (s)he wants to participate). Basically, our advisers will be going on appointments we set up to close business. Then, they will act as the ongoing liaison between the money manager and the client.

Since we handle all of the benefits, back office, compliance, prospecting, etc., and considering that our advisers do less of the leg work, we offer a lower payout to cover our costs elsewhere.

Would I like to offer 40% and put all of the daily responsibilities you already have back on you again? Sure! I would make a lot more money. But it is hardly fair or enticing to advisers. If I was recruiting advisers just to get their books of business in-house and profit a little, I would have to offer 70%-80% payouts (depending on book size).

Point: it depends on what you will be responsible for. If you are going to do the same work you are already doing for 25%-35%, you should be getting 60%-80%. If you will be doing less work, you can take a lower payout. If you will be totally independent, responsible for your own marketing costs, assistants, etc., but working under a new name firm, consider forming your own RIA and taking 100% (and everything that goes with it).

I wish that your question was a joke.  Unfortunately, I know that it's not.

Ex.

I am your biggest client.  I had $5,000,000 and you were advising me.  You said, "Put it all in XYZ stock.  It will double in the next year."  XYZ goes bankrupt.  I lose everything.  I sue you for $5,000,000. 

If you have no coverage, how can you possibly pay if you lose?  You could sell the business, but it will now have little value since you are being forced to sell.

If you were forced to sell, how much would your business be worth?  Isn't it easy to see that a reasonable claim can be worth more than this amount?

A client is foolish to do business with someone without adequate means to pay a claim.

 Isn't it easy to see that a reasonable claim can be worth more than this amount?

A client is foolish to do business with someone without adequate means to pay a claim.

I thought we were having a serious discussion. Your example is ridiculous. Your conclusion is unsubstantiated. I think you have a point here, but I don't see it. Come on, we are personal financial professionals, let's reason through it together.

If you are saying, " Some RIAs might make this recommendation, so all need to transfer the risk", I think you are bringing a broker dealer mentality to the problem, in the sense that b/d firms are willing to engage in behaviors that may damage the group.

For example, you have been my client with 5 million for eight years, and now we are moving your money from b/d to RIA. It will still be invested in 50% stocks and 50% fixed. The porfolio can still flucuate up and down, something like negative 12 percent and plus 23 percent.

Anyway, we have been working together for years, we understand each other and your goals and we trust each other. And now, you're going to pay less, and we are going to leave behind the b/d world, with its  " assurances " and apparent weaknesses.

And if I "forget" to invest $100,000  and the market goes up ten percent, I am paying you ten thousand dollars, should it come to that, should you insist. Our agreement is that we are both looking at everything all the time, but I am responsible for doing what I say I am going to do.  If I buy the wrong ticker and fail to notice it, same thing.

That has never happened over the past eight years, because I don't make (many) mistakes. But we are both human, and mistakes can happen. As far as dishonesty is concerned, you will have to decide based on our past. We know each other pretty well, but I understand if you are afraid and respect you if you want to keep your money at a broker dealer.

[quote=razeurgame]Tell me how  a reasonable claim could be worth more than the value of the business. [/quote]

razeurgame is a troll and is probaly YET another incarnation of the schizoid personality who has been crapping all over this board. 

If not then he/she/it as a supposed advisor, doesn't seem to know the difference between a RIA/IAR  and has no clue about how this industry operates.

Would you turn over your life savings to someone if you had no recourse if they completely screwed up? 

I think that most potential clients would say, "no".

Without E & O, they could still sue you, there just might not be anything to collect.

[quote=razeurgame]

If you make a mistake or omission, you pay for it. You either self insure, or you carry insurance with a low or high deductible. The business itself is valuable, it is collateral against any reasonable claims. Analytical clients understand this, clients who just delegate will assess your character.

Obviously you have a particular bias and an agenda which would be proving the superiority of the RIA platform.

I can understand your defensiveness, since you defended Bobby's behavior in another post, something about having fun at happy camp or something goofy like that. Who has an agenda?

[quote=bluestar][quote=Dust Bunny][quote=bluestar][quote=Dust Bunny][quote=bluestar]

Anyone has any idea about the prevailing payout rate for independently practicing advisors in an fee-based setup?  The company charges 1% annual fee of asset value up to 3 mil.

No base salary, all production payout...

[/quote]

To give you a real answer. The pay out depends on where you fall in the production grid.  If you produce XX from any sources ,commission  and fees, you get a 70% payout. (the lowest for my firm)  If you produce XXX you get a 90% pay out.  Highest for the firm unless you are an OSJ.

[/quote]

90% payout???!!!  You're not playing a joke on me, are you??  I don't want to be kicked out of the interviewer's office....

[/quote]

Well,.... obviously you don't want to go in demanding 90%. That's would only  be for proven big producers.  If you have commission statements to show previous production you may be able to use that as a leveraging tool for you initial payout, but expect to be put at the lowest level until you prove your production.   Until the company sees that you are actually producing at whatever their grid level is they are going to low ball you.  You might ask what the grid looks like, how much production do you need to have and for how long before you are re allocated on the payout grid.

At least that's the way it works in the firm I'm affiliated with. 

When I went indy several years ago, I was at 70% and in 8 months or so was bumped to 80%.  I might have been started at 70% (which is a bit high)  because of my previous track record, so possibly you could be looking at something lower.

It really all depends   It depends on how much the company is providing for you in services and support on how much they will take from the total fees and commissions.  If they are providing equipment, paying your E&O etc then they will take more. 

So out of my 80% I pay for everything.  Platform/affiliation fees, E&O, extra research sources not provided in the platform, Rent on my office, advertising costs, postage, utilities, my own equipment, continuing education and so on. 

Before you go Indy you need to have some idea of what your expenses you are responsible for, how much they will be, what payout grid you are going to be on and do a number crunch to see if you can live on that.   Just like any business, when you are in an independent shop......it means just that.....independent. 

[/quote]

The firm I'm considering moving to is SEC registered RIA firm.  Our discussion hasn't advanced to all the agreement details yet, just the understanding that the company will provide all the SERVICE support, from office to equipment to report generating.  I'm on my own with  managing my clients assets, servicing my own clients, and developing new clients.

I estimate I can move about $20-30 mil over, so I'm that much "proven".

Does these info change anything???

I'm glad two people both put it around 70%, and I hope I end up getting at least that....  but to be honest that still seems very high to me...  I'd need a big confidence boost to ask for that.

[/quote]

I guess you completely forgot about your lecture, based upon your apparent misreading of the fact we (bluestar) were talking RIA the whole time. Talk about high moral horse embarassment.

And now you are discrediting me for being a non industry troll? Pretty gutsy, but not out of line with the apparent norm for a few clubby posters here.

[quote=anonymous]

Would you turn over your life savings to someone if you had no recourse if they completely screwed up? 

I think that most potential clients would say, "no".

Without E & O, they could still sue you, there just might not be anything to collect.

[/quote]

Your assertion is general, and your unwillingness to reason through a specific example is a weak debate.