Got my Contract Today
63 RepliesJump to last post
Seriously? You really think that newbie that takes over that office has anything on his mind other than keep as many clients as possible and survival for the next two years? That’s a stretch and I think you know it.
Spiff,
That's the fundamental reason FA's leave EJ and other wirehouses...BD's think the clients are theirs...WRONG!!!! No home office has done one thing to establish new clients for an FA. There should be no "non-compete" contracts out there...they should be outlawed for FA's. The only contract we should have outlines our cost structure from the BD, as they can change your payout any time they want. They could change it to ZERO and still get a TRO on you if you leave and talk to clients (yes...I know it's an exaggerated example but there is nothing to stop it). BD's have too much power over us to include there ability to end your career with a negative comment on your U-5 which you can't even appeal. We need a trade association with some real clout. Workers Unite!! Ouch...that sounded like union talk and I'm not a fan of unions.Or we can vote with our feet - as I know you have already done uwec1986 - by going independent.
Nothing reduces a B/D’s leverage like eliminating the B/D!
Going independant doesn't solve the payout change problem. LPL or RJ could decide today that they are reducing payouts to 60% across the board. Where is it in your contract or agreement with them that they have to keep payout at 80%, or whatever it is, indefinitely?
I agree with you that the B/D mindset that those clients BELONG to them is flawed. I agree that there shouldn't be TROs. Clients should be allowed to follow their advisor wherever he chooses to go. Ultimately, they can. I don't think you can fault the B/D for wanting to retain assets that they spent money to acquire. Salaries, equipment, buildings, licensing, etc all cost a bunch of money. If they didn't try to retain some of those clients it would cost a fortune. My arguement here was with CIB stating that Jones gives a directive to those new FAs taking over existing offices in a competitive situation to dig up legal evidence or witnesses for the prosecution. Like I said, those new FAs have nothing on their mind than retaining clients and surviving.That’s naive. My contract says 90% for the life of the contract. This cannot be unilaterally changed by LPL. Now, the contract can be terminated with 30 days notice from either party, but that also gives me complete freedom to either negotiate another contract with terms agreeable to me, or I can take my book elsewhere. Beyond that, the only change I’ve seen since I’ve come on board, has been an increase in the bonus structure beyond 90%. Spiff, I’m fine with you personally, but you need a fact check on that one. Contracts are much different than employer/employee relationships where such crap can (and did ) happen to me.
[quote=Spaceman Spiff]
Going independent doesn't solve the payout change problem. LPL or RJ could decide today that they are reducing payouts to 60% across the board. The difference is that and Indy can leave 30 days later and nobody will be trying to keep his clients. Nor will the Indy BD badmouth the FA or hire a new guy to do it.
I don't think you can fault the B/D for wanting to retain assets that they spent money to acquire. Salaries, equipment, buildings, licensing, etc all cost a bunch of money. If they didn't try to retain some of those clients it would cost a fortune. The BD is paid 60% to cover their costs and make a profit. The BD did not create the client base and in many cases the back office screws up and may reduce the client base. Like I said, those new FA's have nothing on their mind than retaining clients and surviving. The new FA goes out of his way to bash the old guy who built the business and I'm sure it's with training from the BD (informally...of course). The new FA should just be happy that he got a one or two year head start and sing the praises of the guy who really did the work. I dealt with this personally...but I got more than even by blowing the whistle on EJ for Revenue Sharing. Yes...I'll be riding that horse FOREVER!!!! [/quote] How did the spreadsheet look and are there things I need to update? I think you'll agree that I was fair to EJ.I think if you look at my posts you will see I do not engage in mindless Jones bashing...I stand behind my comments because the new guy is watching the dollars roll out the door, and in his/her mind, if he can get the evidence to get Jones to go after the former IR, the bleeding will stop and his job will be easier. Keep in mind they are led to believe they are "entitled" to most of those assets. They are in my old region anyway... the RL tells them "Jones says only half will leave, so you'll end up with $xx million."Seriously? You really think that newbie that takes over that office has anything on his mind other than keep as many clients as possible and survival for the next two years? That’s a stretch and I think you know it.
uwec - the spreadsheet was fair to Jones. I haven’t had the time yet to dig through it, but from a quick glance it looks like your numbers are pretty good. I’ll let you know. Thanks for sending it.
I knew that someone would say, but I can leave to go to another B/D. You can, sure. But, if the indy world as a whole started to lower payouts, where would you go? If you are with the firm you think is the best right now and they screwed you, do you go to the second best firm for a better payout? You're in no more secure of a position than I am at EDJ as far as that goes. You still have to answer to your own mother ship when it comes to payout.Spiff,
Sorry but you blew this one. 1. You can move from Indy to Indy and nobody will try to steal your clients. 2. BD's can't set prices as a whole...that's illegal. 3. The "best" firm is based on more than just payout. 4. The BD can change payouts but we can move...Indy BD's look at the world 180 degrees from Jones. This has been said before...Indy firms work FOR the FA (but still try to make a profit and meet the regulations). At non-Indy firms, the FA works for the BD and if they don't like the changes, yes, they can leave but the BD DEMANDS that the clients stay with them and in THEIR perfect world, the clients would. Non-Indy firms believe the FA is less mobile and will eat what ever excrement sandwich they dish out. Indy BD's know we have options and have shown a willingness to use that option so they at least try to keep us happy. FA's are the profit center and Indy firms know it...EJ just says it and $crews them every chance they can.I am a Sole Prop right now and was talking to a CPA about incorporating today. I could certainly use some guidance on the subject.
From my accountant: If you are talking dividends to avoid FICA-consider that as a one-man company we are producing the majority of the revenue, so “reasonable comp” would be most of our income.
FICA is only paid up to 102,000 in 2008. To be an S Corp you need to have payroll service (at what expense?-apparently more than the 15.3% of the income you can reasonably consider a dividend) Additional accounting work (expense) LLC requires no payroll, and very little accounting work. It is my CPA's opinion that S Corps are overused for small businesses such as ours that are service businesses. I am taking his guidance on the issue. If someone can make a strong case against the above, I'd be interested in hearing it.The reason for my question…My accountant is questioning the validity of having an S corp when LPL pays commissions in my name and then direct deposits into corp acct. He said I can’t assign my income to any entity…IHO. When questioning LPL they say they only contract with individuals and will not contract with a corp or ein number…the reason we get the 1099 not the corp. I know of several who incorporated and some who have LLC’s. I hate to get audited and then find out it wasn’t allowed and IRS wants me to pay social security on gross and not on the salary I pull out of my corp…
Going independant doesn’t solve the payout change problem. LPL or
RJ could decide today that they are reducing payouts to 60% across the
board. Where is it in your contract or agreement with them that they
have to keep payout at 80%, or whatever it is, indefinitely?
[quote=Morphius]Or we can vote with our feet - as I know you have already done uwec1986 - by going independent.
Nothing reduces a B/D’s leverage like eliminating the B/D!
[/quote]
Spiff,
It also depends on how you define “independent.” If you go RIA you completely eliminate the B/D altogether, which is what I was referring to.
If there IS no B/D, there is no ‘mother ship’ nor anyone to dictate your payout, which of course is 100%. How much of that makes its way to your bottom line depends, again, on you and the expenses you deem necessary or worthwhile.
The independent B/Ds have done a marvelous job of co-opting the term “independent” so that when most reps hear it they think only of independent b/ds, of which LPL is the largest. And for many that is as far along the spectrum of operating models as they care to go. But that wasn’t what I was referring to.
I get a personal deposit from my b/d, then it goes straight to my LLC business account as gross income. Then I net expenses off through Quickbooks and report it on schedule C with a tax ID #, but part of my personal return. My CPA is experienced and conservative, and he has given me no reservations about this structure. I'm an LLC if it wasn't clear above.The reason for my question…My accountant is questioning the validity of having an S corp when LPL pays commissions in my name and then direct deposits into corp acct. He said I can’t assign my income to any entity…IHO. When questioning LPL they say they only contract with individuals and will not contract with a corp or ein number…the reason we get the 1099 not the corp. I know of several who incorporated and some who have LLC’s. I hate to get audited and then find out it wasn’t allowed and IRS wants me to pay social security on gross and not on the salary I pull out of my corp…
[quote=uwec1986]
Disclamer...not a tax professional. LLC gives you more flexibility to move partners in an out. I use an S Corp. and do payroll through Quickbooks but you could just use a tax table online to do your payroll calculations...I just like QB Payroll ($200/yr). LLC or S Corp. you still need to keep track of your expenses and categorize them. I also signed up online with the IRS to make my payroll deposits that way and the same with my state. You don't have to run a payroll to take funds out of your business and you can avoid FICA for about 40% (do at least 60% of your profit as W2). Try to pay your FICA as a payroll and not quarterly to avoid a penalty if you should have a big month in Dec. Quarterly payments will recalculate and the IRS will say that you should have paid more even though you didn't have a huge month until Dec. If you pay with payroll deduction for your payroll taxes, you just pay more when you have a big month. That's how I do it...right or wrong.[/quote] I too am not a licensed tax professional...I would guess based on my conversations with my CPA your allocations may be a big "aggressive," though tax law is very subjective on this issue. He feels dividends are more appropriate on "management of revenue" rather than "self-production." (my own terms)CIB,
Just to be clear...you pay income tax on 100% (60% from W2 + 40% from Divs) but the 40% from divs is not taxed as FICA wages. Profit from K1 to personal return + W2 wages and you pay all the tax on your personal return. The Divs are taxed as ordinary income.Having some background in tax prep as a CPA and sitting in an office of CPA's here's my take: UWEC is spot on with pretty much everything he says. Quickbooks makes payroll pretty simple and any accountant worth his salt can show you how to run payroll in 15 minutes.
Spears, it is my experience that you CAN assign your income to an S-corp. My 1099 goes to a schedule C and I have one expense item, wiping the entire amount with a label "reported through S-Corp EIN #XX-XXXXXXX" or something to that effect. It's been done for years by many and I've not heard of it being challenged. The IRS cares more that it IS reported than where it is reported. IMHO, your accountant needs to think just a bit out of the box. On reasonable comp, there's no reason to believe that you can't pay yourself the same percentage you were paid as an employee. If that's 40% of the gross, then pay at that level and dividend out the balance of profits without social security taxes. That is a very reasonable level that should be very defendable in an audit. If you're producing at a decent level, you won't save much in social security taxes, but medicare taxes go on forever. You'll save 12.4% on the difference between your wages and social security maximum (if any) and 2.9% on all non-wage income taken as dividends. FWIW, the government from time to time makes noise about considering all such withdrawals as wages. If that happens, the social security and medicare tax savings will disappear, but those are hardly the only tax benefits of incorporating. Some of you guys have some real pussies for accountants. DISCLAIMER: I'm not your tax advisor, so don't be using this post for defense in an audit. Your situation and state rules may be very different than mine. However, if your accountant is being a pussy about this, you might want to look for another who is willing to grab his cajones and take a position.[quote=uwec1986]CIB,
Just to be clear...you pay income tax on 100% (60% from W2 + 40% from Divs) but the 40% from divs is not taxed as FICA wages. Profit from K1 to personal return + W2 wages and you pay all the tax on your personal return. The Divs are taxed as ordinary income.[/quote] I was aware, but good to clarify for the newbs and those considering future independence-this is a big issue.