Fair Commission Split
I work for a CPA firm in CO and have been in practice for about 15 years & have built up a decent client base over the years. I recently became a Reg Rep for Principal, just got my life, health disability insurance licenses with the state and took the Series 6 & 63. I took the 6 to speed up the process with Principal. I wanted to be able to open retirement accounts before the year-end for my client tax planning. I am scheduled to take the 65 soon & then want to take the 7 shortly after.
I have been talking with another Principal rep that just got back into this industry earlier this year. He has 2-3 yrs experience. He has his 7 & is taking the 66 exam soon. We are trying to figure out a fair, reasonable commission split. All of the clients are going to be from my practice I have developed & my clients best interests & well-being will always be the highest priority.
For the insurance part, if one of my clients is looking for policies, I will have the initial discussion with them. Then I intend on having my associate contact them to start the application, run their info thru the system & underwriting & deliver the policy. I could do this myself, but my time is better spent in my consulting & tax practice.
For the investment accounts, I think it will be easier if I go thru the account opening apps with my clients while they are already sitting in my office. I would help initiate any account transfers if they wish to transfer any accounts from other brokerages so we can easier manage their investments. I intend on challenging the CFP exam later next year after tax season so I should have that designation within the next year or so hopefully. I will do most the financial advisory interaction with the client.
What do the brethren here feel is an appropriate split for this business relationship with my associate? For the insurance side? For the investment side?
How is Principal to work with? Would another brokerage be a better fit for my situation?
Any advice or issues to watch out for going forward?
I see where the company designates a "servicing agent" for the policies & an "advisor" for the investment account. Should I be named as both with the company? Is this important?
Also I am not exactly sure yet how I am setup with Principal. I am an independent agent with outside business activity, but for some reason I have a suspicion he may try to set it up like it was a team with him as the main guy. I haven't had much contact with Principal yet, just thru him. Should I be dealing more directly with the office mgmt?
My contribution to this thread will simply be to tell you that after you get your feet on the ground you'll wish you'd done this 15 years ago.
The most difficult part of this business is getting people to trust you, and you're already there.
I can't tell you the number of CPAs I know who decided to "try out" the investment business and subsequently sold their tax and accounting gigs to do investments full time.
You are going to be shocked at how much money you'll make in relation to the hours you spend working at it.
No more spending nights in your office racking your brain on complex tax returns; this profession is replete with folks who are making $500K per year and don't know their a$$holes from their earholes. I'm not joking about that. I have a top producer in my town who is one of the dumbest people I've ever met.
It's not about who's smartest, it's about who can get people to give them their money. You're intelligent, and established, and will be on your way to knocking down the big bucks in no time.
"No more spending nights in your office racking your brain on complex tax returns; this profession is replete with folks who are making $500K per year and don't know their a$$holes from their earholes. I'm not joking about that. I have a top producer in my town who is one of the dumbest people I've ever met."
Why doesn't such a stupid comment surprise me? Maybe it's because this guy is a Jones rep!
Just about any firm other than Principal would be a better fit for your businesss, in my frank opinion.
Principal is going to take way too much off the table--a true indy firm would be better... Who is branch manager?
Raymond James, LPL, Commonwealth...some even recommend Wachovia FINET, but I have a hard time trusting bankers.
Consider ownership as well. With an Indy firm you can sell the practice when you are done. I'm not sure what Principal's setup is.
My opinion is that if you are bringing in the business and someone else is doing the work. pay them 35-40 of the gross production if you own the practice. That is similar to a bank that provides most of the business. However, if the advisor is good you have to eventually offer them a share of the business or they will leave. Make sure they have incentive t grow the business as well.
See the comments that folks make about Principal in this thread...particularly when Pratoman comes back and concedes that he has learned that Principal reps are going to cannibalize business from a 401k plan that he placed with them:
Do you really want to do business with people like that?
Hulk I agree with you on the extent that I don't think a great CPA can also be a great FA at the same time. I know several bright HD Vest CPA's who are good at what they do but they are not great FA's by any means. They basically just go with the recommended investment list because they have no time because of their tax practice. Personally I like to see CPA's try to be FA's because I know they probably aren't going to do that good of a job there isn't enough time to be great at both. Now in all likelihood is he going to start opening multi-million dollar accouts. Absolutely not, he will get the initial retirement plans and small accounts from his client base since they already know him. If he does well bigger accounts will follow. I really don't care about a CPA trying to do investments because for the most part my client base is not going to deal with their CPA on investments they expect a referral to an advisor from their CPA. Plus it will make it easier if he doesn't understand what he is doing to take business from him if the opportunity arises. CPA Man my advice is HD Vest since they specialize in dealing with CPA's. They have a lot of proprietary product but since you are starting out it will help to be able to utilize their platform designed for CPA's. That's just my opinion on the matter certainly not gospel just the way I see it.
Yeah don't lose too much sleep worrying about the CPA's taking over. Just like everyone else some are good and some suck.
I have a CPA buddy who says he refuses to get into the investment business--like many of his collegues--because he feels there's a conflict of interest.
I'm not sure what he means by that. Obviously, CPAs know about every asset their clients have, but if they're doing what's right for them on the investment side, what's the big deal?
For the record, I would prefer CPAs stick to taxes and accounting and let us handle the investments. However, I believe we're going to see a tremendous influx of CPAs and attorneys into the business over the next several years. There's just too much money to be made, and they have a captive audience/client base from which to draw.
As a side note in reference to the comment about CPAs not doing a good job as FAs, I have an uncle who has been a CPA for 30 years and has been co-operating as an FA for about 10. When I got into the business, I transferred in some of his accounts and was shocked at how poorly they were constructed. He's very intelligent and ethical, just not very good and putting together portfolios.
(I've also noticed that CPAs love selling annuities and then going on the free insurance company-sponsored trips.)
I think it makes perfect sense for a CPA firm to have a wealth management division. I would love to have my CPA firm handle both. And it's a win-win-win business move. But a single CPA doing taxes and investments? I just don't think you can keep up with both adequately enough. I would say 99.9% of the time it's a CPA adding on investments to his practice(versus an advisor adding tax returns to his repertoire). If he is solo, I just don't know where you find the time to stay on top of the investments. Yes, if you only do a few hundred tax returns from January to April, you have 8 other months to work on investments. But I have yet to meet a CPA that did not spend the next 5 months working on June year-ends and extensions. The few CPA's I know doing investmetns basically just open little IRA's for their tax return clients, and put them in some weird stuff (no real asset allocation methodology). They charge an asset fee so they can even out revenues in their practice. Great for their business, but the client seems to suffer.
I would advocate a CPA and an indy advisor teaming up, but really not a CPA doing both himself.
That's exactly what I did...and it works beautifully...
I would advocate a CPA and an indy advisor teaming up, but really not a CPA doing both himself.
How did you go about approaching the CPA, how do you share expenses, staff, etc.?
I'd have to assume you work with a majority of his clients? Does he get a referral fee?
Actually, I had two firms approach me while I was still working in a bank. I think being a CPA myself helped form a natural bond and so when the time came for me to make a move, I spoke to both firms and in the end, moved to the firm that was ready for me to move in when I needed to go.
As far as sharing, they hired my assistant away from the bank and as I ramped up and needed help, they simply billed me an hourly rate equal to her rate plus fringes. As it stands now, I use up about 70% of her time and I may well end up just taking her on as an employee. Leaving her on their books allowed me to establish a solo(K) and contribute a wad of money over the last two years (this year it will be about $35K).
As a part of my rent, their other employees also help with answering my phone (my assistant answers it most of the time) and greeting clients in the reception area. I also have free use of their fax, copier, printers, network, tax program and high-speed internet as a part of the rent agreement. I feel like I'm generous and the whole thing runs about 7-8% of my gross, plus cost of my phone line and charges for my assistant. For them, they now have dead space producing pretty good revenue.
We have a lot of common clients and I pretty much get the new business, although they have been careful to not step on mature advisor relationships unless there was a problem. As far as revenue sharing, it can be done on fee-based accounts as-is, or on all business if they have the appropriate licenses. To avoid getting bogged down, we've just agreed to have a generous rent arrangement that can vary, depending on my level of success, with the theory being that if I'm generating more revenue, I'm probably also using more of their resources.
I do a few tax returns and am trying to get rid of those...everything new, I refer to them and they've gotten some nice business out of the cross-referral game. There's no doubt I'm seeing people that I would not see in my own office, but still, the vast majority of my business, new and otherwise is due to my efforts and client referrals. I'd say about 15-20% comes straight from the accountants, so it's no excuse to not market myself.
As much as anything, being in this office gives clients and prospects the instant illusion of a larger firm rather than a lone wolf. I may eventually move into my own space, but that will probably not happen until I am at least a four-person firm. Right now, I really like having plenty of people around to cover the phones and greet clients.
Good stuff. Thanks.