Educate Me

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Aug 10, 2006 2:37 pm

I currently work for one of the wirehouses.  Have had some friends go Indy recently.   Some love it, some are looking for another wirehouse to go to.  None of them have big book ($50 million plus.)  I understand that some Indys have 90% payouts.  After all of the expenses you incur on an ongoing basis how much of every dollar do you really take home.  Please don't get into the my products are better than yours or your firm sucks.  We all know you don't like Jones so let's not go there either.  Just a real question about dollars and cents.

Aug 10, 2006 2:59 pm

After expense and pre-tax 69%

Aug 10, 2006 4:50 pm

No way! Go to the General Issues on this board and look up the topic Indy. You'll see after all expense including BOA it's about 41%. Not enough to go indy I'm afraid.

Aug 10, 2006 5:17 pm

You are both wrong.  There is no definite answer to the question of how much an indy broker will net. 


There are so many variables that can be high cost, low cost or even eliminates



Office rent do you share an office? Are you in a rural or urban area. East Coast, Midwest, West Coast?
Utilities
Office staff.  Do you have any at all.  Full time, part time
Equipment costs  rent/own
Insurance  E&O
Personal health insurance and liability
Ticket costs
Affiliation and platform fees
Continuing education fees
Postage
Advertising how much or how little plus costs vary from location to location
Seminar costs. 
Business structure.  Sole Prop. S Corp.  LLC
so on and so on

I am at about 75% net before taxes, but that is just me.  You have to figure it out for yourself and crunch the numbers to see if YOUR business model can be supported by the amount of GROSS commissions you can make.

Aug 10, 2006 6:03 pm

about 70-75% here

Aug 10, 2006 9:37 pm

70-75% net pre tax and your working out of your home. Either that or you're not accounting for ALL your expenses. Like my numbers show from my above post, if you have an office and asst. working on your own. You will be lucky to net pretax 50%. Check my numbers out that LPL ran and tell me line by line item where they are off. 

Aug 10, 2006 9:42 pm

So you don't have to go look up my posts. Here are the numbers straight from LPL.


Ownership Value - Your Private Practice as an LPL Financial Advisor


Office Cost and Profitability Projections


Office characteristics: Revenue composition:


Advisor revenue $ 205,021 SAM I 0%


Annual new client asset growth rate goal 5% - 15% SAM II revenue 48%


# of advisors sharing office costs 1 Advisor Select revenue 0%


Full-time assistants in office 0 General securities revenue 14% THESE NUMBERS DO NOT ACCOUNT FOR AN ASST. PAY!! ADD 24K FOR PAY ON TOP OF THE TOTAL OP COSTS AND YOU HAVE A 41% NET PAYOUT


Part-time assistants in office 0 Mutual Fund, VA, and all other revenue 38%


Office location Metro suburban 100%


Annual


Performance % of revs


Gross revenues: $ 205,021


Costs of revenues:


LPL commissions and administrative fees 3 3,207 16.2%


Ticket charges 1 0,042 4.9%


Industry-wide advisor costs (NASD, SIPC, etc.) 1 ,116 0.5%


LPL contract/E&O/tech/costs 6,565 3.2%


Offsets:


Production bonuses ( 1,050) -0.5%


Total costs of revenues 49,879 24.3%


Net payout  155,142 75.7%


Cash operating expenses per advisor:


Total compensation and benefit costs (excluding owner comp) 1 4,000 6.8%


Total occupancy and facilities costs 1 6,650 8.1%


Total equipment & supplies costs 3 ,300 1.6%


Total marketing costs: 4 ,100 2.0%


Total printing, reproduction & postage costs: 2 ,460 1.2%


Total communications costs: 5 ,880 2.9%


Total miscellaneous costs: 3 ,700 1.8%


Total cash operating expenses per advisor 50,091 24.4%


Operating cash flow  105,051 51.2%


Your Projected LPL Office Model office assumption notes


Determined by product mix. Mutual fund and other non-individual securities revenues generally have the least associated


cost, followed by advisory revenues, SAM II revenues and, lastly, general securities revenues.


Determined by product mix. General securities, SAM II accounts, certain mutual funds, and some other transactions carry


ticket charges. Advisory accounts (other than SAM II), variable annuities, and certain other transactions carry no ticket


charge.


Assumes subscription to the following LPL technology platforms: BranchNet, Portfolio Manager, Portfolio Review Too


(PRT), Representative website.


Significant assumptions include: For each advisor: $8,000 for health insurance. For all personnel: payroll taxes of 8.0% of


wages including owner's salary estimated at $75,000.


Assumes 900 square feet leased at a total cost of $18.50/sq ft for office space. Pricing includes cost of utilities and repairs.


Assumes fixed costs of $800/office for miscellaneous equipment and repairs, and variable cost of $2,500/advisor for office


supplies, stationery, and software.


Assumes marketing costs of 1% of revenue for offices with <5% annual new client growth rate goal, 2% of revenues for 5-


15% new client growth goal, and 3% of revenues for >15% new client growth goal.


Assumes consistent variable costs of 1.2% of office revenues.


Assumptions include: 3 phone & fax lines costing $1,500/advisor for local and long distance calling, $600/advisor for cell


phones, Internet costs of$1,980/year for business-grade DSL and $1,800/year per advisor for stock quotes.


Assumes fixed costs of $3,700 per office as follows: $1,000 for accounting, $500 for IT consulting, $200 for bank service


charges, $750 for misc insurance, $750 for misc taxes, $500 for dues and subscriptions.


Aug 10, 2006 10:04 pm

ez...if I'm not mistaken, several of the posters feel they can run their

business without a full-time assistant. If you do completely without in your

numbers above, you basically tack on another 12%, so you're at 63%. Most

of us could probably run a $200k gross business by ourselves if we had to.

Even at a moderate $250k/hh you only need 80 clients paying 1% to get

there. LPL seems to be good at availing people of the tech you need to get

more done by yourself; I'm sure other b/ds are similarly capable.

Aug 10, 2006 11:02 pm

On average, about 72%, pre-tax.


Aug 11, 2006 12:54 am
ezmoney:

70-75% net pre tax and your working out of your home. Either that or you're not accounting for ALL your expenses. Like my numbers show from my above post, if you have an office and asst. working on your own. You will be lucky to net pretax 50%. Check my numbers out that LPL ran and tell me line by line item where they are off. 



By the way you may be missing out on a lot of the tax benefits, too.....does your employer reimburse you for all your marketing/client entertainment expenses?

Aug 11, 2006 12:59 am

A lot of the time there are more efficient ways you could be running your practice as well.  Perhaps the investments you're currently choosing generate higher levels of fees than other similarly performing models?  If you're seriously considering LPL, make them work a bit for your business: Talk to them about the low net and see if they have any suggestions?


Or did you go with another one?  Stay where you are?  I seem to remember you answering that somewhere...

Aug 11, 2006 8:25 am

again the numbers that I posted DO NOT include an asst. and the net payout is only 51%.

Aug 11, 2006 9:45 am

My payout is higher than 51%. However, not having to deal with all of the corporate BS at a wirehouse is priceless. I will never go back.

Aug 11, 2006 10:37 am
ezmoney:

again the numbers that I posted DO NOT include an asst. and the net payout is only 51%.


For the record ez, my expenses don't even approach most of the numbers that you've cited.

Aug 11, 2006 10:38 am
downtown:

My payout is higher than 51%. However, not having to deal with all of the corporate BS at a wirehouse is priceless. I will never go back.



Aug 11, 2006 11:40 am

Fixed your font size so we don't need a magnifying glass to read it.


You need to realize that the below costs are just suggestions and are not carved in stone.  Each of us runs our offices in a different manner depending on location, product mix and costs from the B/D that we are contracted with.  Off the top of my head I am making some comparisons with my business and your model.  The figures are not exact but pretty close and I am averaging the costs from year to year. 


Obviously some years I might spend more on advertising or need to purchase a new piece of equipment.  Other years I may do more variable annuities and less trades that have ticket costs.  Sometimes I may do more insurance (fixed annuities and life cases)and in that case my pay out is 100%.  Sometimes I might decide to do more seminars and then that would add to the costs.  The issue is that in many areas I can control the costs of my business


Costs of revenues:


Gross revenues: $ 205,021  This is about right


LPL commissions and administrative fees 33,207 16.2%   No administrative fees . Override from  my B/D  $20,500


Ticket charges 10,042 4.9% This figure is incredibly high.  If you do business directly with the fund families there are no ticket charges.  Same thing with insurance products.  I do stock and bond trading as well and my charges are no where near this.  Average 4 to 5K


Industry-wide advisor costs (NASD, SIPC, etc.) 1 ,116 0.5%  Pretty much the same. $1100


LPL contract/E&O/tech/costs 6,565 3.2%  E&O, platform fees and optional  research subscriptions, contents and liability insurance    $4050


Offsets:


Production bonuses ( 1,050) -0.5%


Total costs of revenues 49,879 24.3%  30,640  (19,239)


Net payout  155,142 75.7%


Cash operating expenses per advisor:


Total compensation and benefit costs (excluding owner comp) 1 4,000 6.8%   Health insurance for me and my spouse $5400.  I'm not including my 401K here as it is discretionary.


Total occupancy and facilities costs 16,650 8.1%  Rent, DSL, Phone and Utilities 8400


Total equipment & supplies costs 3 ,300 1.6% I already own my equipment initial one time cost about $3000. Office furniture, conference table etc one time cost about $4000  I'm not going to add this into the yearly deduction.


What is this cost they are figuring every year?   Supplies like what? Paper, pencils, paperclips, toner, file folders, stationary, business cards?    $800


Total marketing costs: 4 ,100 2.0%  Advertising?  I do very little in the paper it isn't effective and send quarterly newsletters. I get most of my business from referrals now and from personal contacts  $2600


Total printing, reproduction & postage costs: 2 ,460 1.2%   I print most everything from my own equipment so I include this in the supplies section.  Postage $400


Total communications costs: 5 ,880 2.9%  Included in utilities


Total miscellaneous costs: 3 ,700 1.8%  ???? Food and booze for the office.  Custom label wine, plants, chachkies   $1500


Total cash operating expenses per advisor 50,091 24.4%  $19,100 (30,0991)


Operating cash flow  105,051 51.2%    30,640 + 19100 = 49,740(55,311)


So you see that there can be a big difference from the LPL projections to real life.  In this case my net before taxes is


205021 - 49,740 = 155,281   


As I said... about 70 to 75%


Again, obviously if the gross production is less, then the percentage of revenue to expenses is going to be a much lower figure since some expenses such as rent, platform fees etc are not adjustable.