Gross Production Question

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Oct 31, 2008 2:57 pm

When a lot of you guys/gals quote T12 and/or gross production numbers, I'm curious of something:


For those of you doing fee-based business thru a B/D/RIA, that "haircut" advisory fees as some sort of "Admin Fee" (or otherwise)...do you count the gross fee charged as your "gross production" or do you only count the "net production" that actually hits your grid?
 
For instance, my B/D charges a relatively hefty "admin fee" to those doing fee-based business (i'm not going to use real numbers, just for privacy). 
 
So if I have $10MM AUM, all fee-based @ 1.25% to the client, BUT the BD haircuts 25 bps off the top before it hits my grid...
 
The gross fee to clients is $125,000.  But the amount of fee hitting my "grid" would only be $100K.  Then of course, if my payout is 50%, my net would be $50,000.
 
My question is, what's my gross production (in a recruiters eyes)?  $125K or $100K?
Oct 31, 2008 3:00 pm

$125k

Oct 31, 2008 5:49 pm

Skip the recruiter and go Indy...on your own...be a big boy.

Nov 1, 2008 1:57 pm

$100k that shows to your grid. that is what they will want to look at. the grid and nothing more.  of course some people never ask for specific proof of your numbers they throw out so you might want to start with $125k and then if they ask for evidence you explain to them your story about the holdbacks.

Nov 1, 2008 2:34 pm

Indies don't seem to care what your tt is. They don't pay big upfront bonuses. I would say it's the total amount of your commissions/fees if you were talking to a wirehouse.  In your case, I would think it's the 125k.

Nov 1, 2008 3:58 pm
iceco1d:

Hmmm,

 
Well now that's two opposing answers.  Can anyone with any recruiting and/or BOM/ABOM type experience weigh in on this?
 
I know this may sound petty at first glance, but when I say "hefty admin fee" I do indeed mean hefty (as in, 30 - 40% of the fee going straight to "admin fee" before 1 dime even hits my grid). 
 
Thanks for the responses so far guys.



Ice that is seriously hefty...I hope you're getting something of value for all that.

Nov 2, 2008 12:42 am
Gordon Gekko:

Indies don't seem to care what your tt is. They don't pay big upfront bonuses. I would say it's the total amount of your commissions/fees if you were talking to a wirehouse.  In your case, I would think it's the 125k.

 
Ehh, we are indy and were offered 10% of trailing 12 just this August from another indy firm.  With Ice's numbers, we definitely went off the total GDC, $125k.
 
At first they offered it as a non-forgivable loan with a 3 year committment, but after we initially declined, they wanted to make it forgivable.  
Nov 2, 2008 8:23 am

Ice-
In a wire - your Gross would be $100k in your example. Its whatever hits your grid. The haircuts you are talking about sound out of whack. At my wire, we dont have haircuts on ALL the fee based programs, on the ones we do its no more than 5 bps, sometimes 10 at the most. If i am managing the money myself in a discretionary fee based program, no haircut. No ticket charges. So like someone else said, at 25% of gross being haircutted, you better be getting some serious value in return.

Nov 2, 2008 8:30 am

ICE, from my perspective, if I were a BD that wanted you...as long as you could continue charging the same fee% (say 1.25%) with my BD, then it SHOULD be the full T12 (125K), since the new BD doesn't care what the old BD's haircut or grid process is. If they are satisfied with 125K gross charge to the client, then that's all that matters.



Pardon my lack of experience, but why does your BD take an admin fee, THEN put it to the grid? Why not just lower the grid? Seems strange to me, but I am guessing you'r grid is probably higher than most?

Nov 2, 2008 8:41 am

ice,

It is whatever you would produce for a prospective B/D before whatever haircuts or fees - in other words $125K in your example.  However, as and when discussions get more specific you'll also need to clarify that is before the deduction of the B/D "admin fee," especially since any documentation you provide of your TT will, obviously, reflect that admin fee hit.  Just make sure they understand that point early on in the process.

I know that sounds a bit like both, but the main thing that matters to a B/D (or a recruiter) is what you would produce in gross at their B/D given your current book of business.  That is your $125K number in your example.  That's what they will be paid on, so that's what they really care about.  The rest is really noise and symantics.

Think of it this way: the fact that your current B/D takes x% off before it hits your grid is only relevant to the extent that it explains the difference between your gross and what your production runs show.  If that weren't the case, that would imply that if your current B/D instead took an admin fee of 2x%, or 10x% for that matter, you would be worth proportionately less to a new B/D, which is obviously not true.

I would also suggest when you get into these discussions, ice, that you be proactive in asking exactly what portion of the revenues you generate the new B/D would take, and exactly what value you could expect from them in exchange, as you aren't very happy with the cost/benefit ratio at your current B/D.  In other words, as soon as possible get them selling you on their value proposition, instead of spending all the time selling them on yours.

Good luck my friend.

Nov 3, 2008 1:19 pm

Got it.  I guess my payout is about the same wehn you net it all out.  So if I charge 1%, the full 1% hits the grid, and my payout is 40% (this does not factor in profitability bonuses that increase your total payout for trimester - however, I am still not profitable enough to get those).  But we can't take any 12b-1's or revenue sharing on advisory, so that all gets rebated back to the client (most of them are load&12b-1 waived/advisory class/no-load funds anyway).

 
However, we take a haircut on insurance products before they hit the grid.  Typically, we get 70% of the gross, then it hits the grid - normally at 40%.  I guess every firm has their way of workign the system.  That's where being indy comes in - you're more in control.  But as you said, it's probably a bit early to do it yet.  It will also be nice to have clients that have been with you longer than a year or two before you jump.