Your Real Net Payout not Gross
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In response to the idea of admin expenses, tech charges, etc., my “payout” from RJ is 73%. This is after the admin charges on advisory, all ticket charges, and their fixed monthly tech charge.
With moderately high expenses (i.e. running a full office with well paid staff), my net net right now is still 40% (which I sustained through the entire downturn). As I surge to the next level, and say add $100k of gross, it adds 73k to my bottom line and my expenses stay fixed. I expect it to climb to about 50% within 12-24 months.
Next to Jones, where I was at about 35%, no bonuses, no LP, but got trips, payout is about a wash, but tax treatment and flexibility are much better.
The answer is very dependent on gross revenue minus expenses, which are going to vary widely depending on the set up.
[quote=Cowboy93]B24, in making the move to independence it is hard NOT to compare to the take as an employee. For example, health insurance: you have a cost as an employee, so I always try to compare the additional cost an indy might have vs. a subsidized plan at a large company.
In other words, as a business owner the whole cost is real but in comparing to the "wirehouse" you can't compare it to zero (since everyone pays something as an employee). To a lesser degree, lunches with clients, etc. I suspect the tax benefits of independence are slightly overrated because they are offset by employer side payroll taxes (which adds 7.65% to start).[/quote] I agree. For someone serious about the move, you really have to do an "all-in" comparison. It's tough to illustrate on a forum like this, as everyone's situation will be a little different. And some of the differences are a little more subtle (401K match, profit sharing, payroll taxes, income taxes, deferred comp, etc.).Do you mind me asking your gross production, and if any of it is attributable to other FA's (that you are giving a higher payout to).In response to the idea of admin expenses, tech charges, etc., my “payout” from RJ is 73%. This is after the admin charges on advisory, all ticket charges, and their fixed monthly tech charge.
With moderately high expenses (i.e. running a full office with well paid staff), my net net right now is still 40% (which I sustained through the entire downturn). As I surge to the next level, and say add $100k of gross, it adds 73k to my bottom line and my expenses stay fixed. I expect it to climb to about 50% within 12-24 months.
Next to Jones, where I was at about 35%, no bonuses, no LP, but got trips, payout is about a wash, but tax treatment and flexibility are much better.
The answer is very dependent on gross revenue minus expenses, which are going to vary widely depending on the set up.
Great discussion and perspective on bottom line payouts.
So much of the industry is based on trying to get us to change b/ds, or go RIA, or whatever. When you focus on the net % payout, and what it takes to push through fixed costs and increase pure profit, it's easy to see what's important to focus on in 2010. Keep the energy focused in 2010.I recalculated my bottom line payout to be about 50% (not 63%). I strongly urge you to hit your goal. Most of what I add this year will be profit, won't need staff or other overhead. A huge incentive to get up to 60% bottom line payout ( GDC/all costs).In response to the idea of admin expenses, tech charges, etc., my “payout” from RJ is 73%. This is after the admin charges on advisory, all ticket charges, and their fixed monthly tech charge.
With moderately high expenses (i.e. running a full office with well paid staff), my net net right now is still 40% (which I sustained through the entire downturn). As I surge to the next level, and say add $100k of gross, it adds 73k to my bottom line and my expenses stay fixed. I expect it to climb to about 50% within 12-24 months.
Next to Jones, where I was at about 35%, no bonuses, no LP, but got trips, payout is about a wash, but tax treatment and flexibility are much better.
The answer is very dependent on gross revenue minus expenses, which are going to vary widely depending on the set up.
One of my clients is set up as an S-corp ... he's one of the reasons I started thinking about going independent. His company creates nearly 700000 in profits a year; he "earns" $60K as a manager. The rest of the profit flows to him outside of payroll, either as dividends, costs absorbed by the company or profit-sharing. He's a pretty savvy guy.
Depends on how much you are paying yourself. Set up as an S-Corp, you don’t pay as much as you think you do.
Did anyone ever get a definitive answer on this bonusing question (recent thread)? Like, an IRS letter of determination in which an FA bonuses 1099 income and it’s okay with the auditors? Is this discussion all still anecdotal?
Do you mind me asking your gross production, and if any of it is attributable to other FA's (that you are giving a higher payout to).[/quote][quote=LuvIndy]In response to the idea of admin expenses, tech charges, etc., my “payout” from RJ is 73%. This is after the admin charges on advisory, all ticket charges, and their fixed monthly tech charge.
With moderately high expenses (i.e. running a full office with well paid staff), my net net right now is still 40% (which I sustained through the entire downturn). As I surge to the next level, and say add $100k of gross, it adds 73k to my bottom line and my expenses stay fixed. I expect it to climb to about 50% within 12-24 months.
Next to Jones, where I was at about 35%, no bonuses, no LP, but got trips, payout is about a wash, but tax treatment and flexibility are much better.
The answer is very dependent on gross revenue minus expenses, which are going to vary widely depending on the set up.
Around 230k gross. I left Jones when Seg 3, which in my opinion is better than waiting until you're Seg 4 and get reluctant to go. While the payout doesn't ramp up as fast, I'd rather build the same business outside of Jones than at Jones, and you see the benefits of being Indy that much quicker.
I could make these numbers much better if I rented a closet and was a one man shop, but that would be a step backward in my clients' minds, and I run my business so it's ready for twice the capacity when it comes.
One of my clients is set up as an S-corp ... he's one of the reasons I started thinking about going independent. His company creates nearly 700000 in profits a year; he "earns" $60K as a manager. The rest of the profit flows to him outside of payroll, either as dividends, costs absorbed by the company or profit-sharing. He's a pretty savvy guy.[/quote][quote=Moraen]
Depends on how much you are paying yourself. Set up as an S-Corp, you don’t pay as much as you think you do.
This loophole is closing and the majority of audits going forward are going to be S Corps doing exactly this. He'd be best off treading lightly.
[quote=B24][quote=Sportsfreakbob][quote=Squash1]So when calculating your net(for those who have posted) what are you subtracting out? what aren’t you?
I think someone posted this before, but 2 people with same everything could have different nets depending on what you take out.[/quote] Squash, (net check from b/d minus rent (which in my case includes phone, office cleaning, etc) ) divided by gross = true net. What i guess is not included in my number is self employment tax, cost of CPA, and postage (which is minimual). Items like marketing costs,, i.e., taking clients to lunch, are irrelevant because i paid for that at my wirehouse b/d anyway[/quote] Yeah, everyone's idea of "NET" is different. IMHO, "Net" should mean the profit of your business, plus any draw/salary you pay yourself, before income taxes and EE payroll taxes on your W2 salary. You should look at it like a business, not like a wirehouse employee. So, really, it should be: Gross Commissions Program Fees Ticket Charges Other B/D fees Rent Office Expenses (supplies, util, CAM charges, etc) Payroll ER Payroll Taxes Health Insurance (and maybe DI and Life if you want to consider those) Licensing Expenses Marketing/Advertising Costs System Costs Postage Phone CE Training Other = NET INCOME Before Income Taxes and any EmployEE payroll taxes on your salary.[/quote] That is what I am getting at. And really, I have looked at other businesses---65% at the end of the day is not bad.Very good point. And yes your net goes up when you generate more revenue because things like Rent and Office Salaries are fixed and will not go up.In response to the idea of admin expenses, tech charges, etc., my “payout” from RJ is 73%. This is after the admin charges on advisory, all ticket charges, and their fixed monthly tech charge.
With moderately high expenses (i.e. running a full office with well paid staff), my net net right now is still 40% (which I sustained through the entire downturn). As I surge to the next level, and say add $100k of gross, it adds 73k to my bottom line and my expenses stay fixed. I expect it to climb to about 50% within 12-24 months.
Next to Jones, where I was at about 35%, no bonuses, no LP, but got trips, payout is about a wash, but tax treatment and flexibility are much better.
The answer is very dependent on gross revenue minus expenses, which are going to vary widely depending on the set up.
[quote=LuvIndy]
LockEDJ:One of my clients is set up as an S-corp ... he's one of the reasons I started thinking about going independent. His company creates nearly 700000 in profits a year; he "earns" $60K as a manager. The rest of the profit flows to him outside of payroll, either as dividends, costs absorbed by the company or profit-sharing. He's a pretty savvy guy.[/quote][quote=Moraen]
Depends on how much you are paying yourself. Set up as an S-Corp, you don’t pay as much as you think you do.
This loophole is closing and the majority of audits going forward are going to be S Corps doing exactly this. He'd be best off treading lightly.
[/quote]
That is a huge one. I pay myself $60k and then bonuses quarterly, then distributions, profit-sharing. They can audit to their heart's content. As long as it follows the tax code, it's not a big deal. Now, a profit of 700k and 60k in salary is a pretty big gap. THAT might get some auditors' panties in a wad.
Just so you don’t find yourself in a place where you have to go back and pay missed payroll taxes and income taxes, and penalties.
I have been wondering about the IRS audit precedents, pro and con. Specifically related to this industry. By hearsay only, I have been told by some b/d colleagues not to do it. The b/d won't 1099 your LLC. Why? There must be a body of knowledge somewhere, pro or con. The only thing you avoid is SS payroll taxes, right? I'm not an expert, just asking. You're avoiding SS taxes on 47k, $7,500k in SS taxes? Am I missing anything here? You'd have to net out a lower SS pension at retirement ( assuming it's not all taxed away). Or does 60k pretty much max out your SS retirement benefit, I confess to not knowing, but would depend on how old you are and how much you already contributed, I imagine.[quote=B24][quote=Sportsfreakbob][quote=Squash1]So when calculating your net(for those who have posted) what are you subtracting out? what aren’t you?
I think someone posted this before, but 2 people with same everything could have different nets depending on what you take out.[/quote] Squash, (net check from b/d minus rent (which in my case includes phone, office cleaning, etc) ) divided by gross = true net. What i guess is not included in my number is self employment tax, cost of CPA, and postage (which is minimual). Items like marketing costs,, i.e., taking clients to lunch, are irrelevant because i paid for that at my wirehouse b/d anyway[/quote] Yeah, everyone's idea of "NET" is different. IMHO, "Net" should mean the profit of your business, plus any draw/salary you pay yourself, before income taxes and EE payroll taxes on your W2 salary. You should look at it like a business, not like a wirehouse employee. So, really, it should be: Gross Commissions Program Fees Ticket Charges Other B/D fees Rent Office Expenses (supplies, util, CAM charges, etc) Payroll ER Payroll Taxes Health Insurance (and maybe DI and Life if you want to consider those) Licensing Expenses Marketing/Advertising Costs System Costs Postage Phone CE Training Other = NET INCOME Before Income Taxes and any EmployEE payroll taxes on your salary.[/quote] The one thing i disagree with here is payroll, that is, payroll that is attributable to the FA himself (other than self employment tax);. The idea here (i think) is to be able to compare what one would get at a wire to what one is getting as an indie. The payroll to the FA is part of the net payout, no matter what you call it.Milyunair - the reason the B/D wont 1099 your llc (or s corp for that matter) is that FINRA doesnt allow it. They are required to pay the FA directly.
You are right, you pay less SS tax, but it does affect your ss at retirement. I am, shall we say, "older" and prior to going indie was maxing out on ss. My accountant told me that the affect it would have on my SS payments, at this point would be minimal, based on teh credits i already have. Of course if you run those reduced w-2 numbers for most of a career, it would have a bigger effect. What i am not clear on is how we can have our personal 1099 income flow thru to our LLC or S Corp. I know its done, i have heard from people who do it and have had no problem, and in fact prior to joining my B/D they had me meet with their inhouse consultant who told me it is done as standard practice. But i dont understand it.Thanks, interesting. I looked at this about ten years ago, I think this is one of a couple of interesting tax strategies, more power to small business owners everywhere. There need to be incentives to be self employed.
[quote=Sportsfreakbob][quote=B24][quote=Sportsfreakbob][quote=Squash1]So when calculating your net(for those who have posted) what are you subtracting out? what aren’t you?
I think someone posted this before, but 2 people with same everything could have different nets depending on what you take out.[/quote] Squash, (net check from b/d minus rent (which in my case includes phone, office cleaning, etc) ) divided by gross = true net. What i guess is not included in my number is self employment tax, cost of CPA, and postage (which is minimual). Items like marketing costs,, i.e., taking clients to lunch, are irrelevant because i paid for that at my wirehouse b/d anyway[/quote] Yeah, everyone's idea of "NET" is different. IMHO, "Net" should mean the profit of your business, plus any draw/salary you pay yourself, before income taxes and EE payroll taxes on your W2 salary. You should look at it like a business, not like a wirehouse employee. So, really, it should be: Gross Commissions Program Fees Ticket Charges Other B/D fees Rent Office Expenses (supplies, util, CAM charges, etc) Payroll ER Payroll Taxes Health Insurance (and maybe DI and Life if you want to consider those) Licensing Expenses Marketing/Advertising Costs System Costs Postage Phone CE Training Other = NET INCOME Before Income Taxes and any EmployEE payroll taxes on your salary.[/quote] The one thing i disagree with here is payroll, that is, payroll that is attributable to the FA himself (other than self employment tax);. The idea here (i think) is to be able to compare what one would get at a wire to what one is getting as an indie. The payroll to the FA is part of the net payout, no matter what you call it.[/quote] Bob, I agree. I was only referring to non-FA payroll.