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Mar 21, 2007 2:19 pm

About leaving a branded b/d for independent or RIA. There has been plenty of discussion here, but does anyone have any (new), succinct thought regarding:


b/d vs. RIA


LPL and Commonwealth ( my favorite candidates)


RIA has better payout and is "cleaner", but seems scary due to potential liability.


b/d offers full service flexibility, and it seems the payouts (LPL) recognize greater efficiency than ever before (better and better).


But, if one goes to the trouble of leaving a b/d that has a lot of lawsuits, poor technology, pushes proprietary product, or whatever, why not just go all the way to RIA?


I realize I can affiliate with a b/d and do RIA for the rest, it seems the liability issue remains and might as well wrap it all together.


Sorry for the old tired question, reality ( continually ) sucks.



Mar 21, 2007 4:07 pm

I cannot answer the RIA question, but 10% was worth it to me.  The RIA's I know went Wirehouse, Indy b/d, then RIA much later.


 Have you took the trips to LPL, RJ, Commonwealth? If your knocking the ball in play. They will all fly you out to their home offices to listen to their wine and dine songs. Some start up money too. Ask the them the same questions you posted above.  This will go a long way in helping you make a critical decision. 


Start prepping your clients!!!



Mar 21, 2007 4:31 pm

Thanks, I did visit Commonwealth San Diego and am impressed with the quality of the people. It also seems like anyone can start a b/d ( not to take away from CF ).


So you got a 10% boost in payout? I have a nice book, most would move.


Does not being "branded" help or hurt referral business?


Can't see how lawsuit notification can help. Has LPL, RJ, Commonwealth had annoying lawsuit mailings to clients in the last couple of years, is this a common fact of life from your POV?


Just a feeling, RJ seems like a suit and tie outfit in their ads,  business casual is my mode, does anyone know if RJ is stuffy or more tailored to reps who care about formal type recognition or image?



Mar 21, 2007 4:36 pm

So you got a 10% boost in payout? I have a nice book, most would move


Not payout, its what I give to the B\D. No, my payout jumped from mid 30's to 80's. The reason it is not 90 is you have transaction, E/O cost, and other fees.

Mar 21, 2007 4:43 pm

Yeah, that is a nice jump in payout. At least the other fees are fixed, so as your production goes up, the payout looks better.


My problem is, my payout is already in the 80s, so I have to justify a move mainly by liking my b/d better.


I guess going RIA, I could sell off the lower book, take the higher payout, and make more $$$ with less $$$ under management.


But, having a b/d seems to give a little more protection from liability. I guess no one can say for certain how that plays out.

Mar 21, 2007 4:48 pm
silouette:

Yeah, that is a nice jump in payout. At least the other fees are fixed, so as your production goes up, the payout looks better.


My problem is, my payout is already in the 80s, so I have to justify a move mainly by liking my b/d better.


I guess going RIA, I could sell off the lower book, take the higher payout, and make more $$$ with less $$$ under management.


But, having a b/d seems to give a little more protection from liability. I guess no one can say for certain how that plays out.



Don't take this wrong, but my caution light just went on. You only get 80 payout from indys or insurance. If your being upfront. Why are you leaving?

Mar 21, 2007 4:52 pm

WHEW...I thought this guy was a GP talking about his payout at EDJ's.

Mar 21, 2007 5:05 pm

Without mentioning any names, my b/d has a "high"  payout.


It is "branded" b/d, not really a wirehouse and not really independent.


Guess who. Not trying to be mysterious, just don't want to diss my b/d.

Mar 21, 2007 5:21 pm

i thought he was talking about bspears's IQ score....

Mar 21, 2007 5:24 pm

I hope my IQ is higher than my payout....my wife probably doesn't think so...I might get checked out...

Mar 21, 2007 5:32 pm

from huffing paint...

Mar 21, 2007 6:29 pm

But doesn't Everybody Love Raymond?


James? You love Raymond, don't you?


When your b/d does thing that embarass you, you should absolutely consider voting with your feet.


OTOH, do clients really care about those letters if they don't pertain to them specifically? The same that was true is the same that is true, your clients do business with you. That does include them expecting you to make sure their assets are secure.


I don't know that clients are AS comfortable with the extra layer of separation you have in the RIA world (I private brand with a b/d that has a well advertised, long established name! and the one degree of separation can be a stumbling block.) Being Heyit'sme LLC RIA with accounts held at Yoohoo,we'reoverhere inc. and cleared through Perishthethought, a separate wholly investor owned independent entity of the bankof42ndstreet...


You have to know how much your clients will take of that sort of thing.

Mar 21, 2007 8:48 pm

Don't know RJ, but you bring up some excellent points.


Bottom line, moving is a pain and it takes time away from good weather activities, and the clients mainly don't care.


Do the research, keep the options open and lined up behind me.

Mar 21, 2007 9:02 pm

You definitely need to do your homework and where you want to be down the road.


I liked the RIA route not only for the high payout (100%), but the flexibility of ways to get paid. I do a reasonable amount of hourly consulting work ($150/hr x 20hrs/mo = $3000 cash). If you think that could be a part of your business, maybe RIA is the way to go.

Mar 21, 2007 9:08 pm

Do you believe, like Schwab suggests, that you need at least 50m AUM to go RIA? Fidelity and TD will take less, I guess.


I was looking at the CFP debate about "fiduciary", I guess b/d affiliataes avoid this stricter standard, do you feel more stress as RIA or is being affiliated with a b/d a false sense of security?


Just thinking, last big market downturn I only had one client who complained and it was "unsubstantiated", but when you are dealing with the general public and lawyers...

Apr 3, 2007 3:17 pm

I'm not really sure a "Branded" B/D means that much at all actually.


My opinion is that your clients buy into your DBA and service more than that of the Broker/Dealer but that's just in my experience.


B/D Branding can work against you also. Just ask RJ, AIG, GunnAllen, etc...

Apr 3, 2007 3:42 pm

Good point, Sampson.


Are you with a b/d or RIA?

Apr 3, 2007 4:18 pm
silouette:

Good point, Sampson.


Are you with a b/d or RIA?




B/D with no RIA but have business partners at the same B/D with RIA books outside of the proprietary platform. They are feeling good about the "fence" between the two even with the bit of increased liability.

Apr 3, 2007 9:29 pm

Sounds like they have enough scale, AUM, to handle the RIA liability better. Being a "mature solo" practice, RIA seems a bit scary, since I would basically be doing everything - the differential in cost looks like LPL would be about the same net with less worry.


Branding just does not seem to offer much, if you are experienced and established. Better to take the $$ as higher payout.


Apr 5, 2007 12:46 am

I went RIA from indy b/d at $15 million via then TD Waterhouse now TD Ameritrade.  First year as an RIA book doubled as clients much prefer working with a fiduciary; and respect the big name custodians much more then some b/d that no matter how familiar we are with them - the clients really aren't.


As for liability - that's what being responsible and having E/O is for.  Expect to have about $10,000/yr for compliance oversight (though someone internally, generally the principal will have CCO title) and to pay $3,000 to $30,000 year for Portfolio Accounting Software.  These are your two largest and primary costs with having an RIA.  The $30k number only really applies if you have at least $30 million in discretionary management and do all of your billing for advisory fees internally.  If you use a 3rd party manager the PAS is relatively cheap.


By the way - the only reason Schwab suggests 50 mil is because they don't want small firms that don't generate a lot of revenue and are pains in the ass.  Ameritrade and Scottrade are much more willing to talk with smaller or start-up RIAs.


Once you pass $300k in fee revenue having a b/d of any kind is a huge waste of money and kills your potential sale value.  On the RIA side you can reasonably expect to garner 6-10 times free cash flow at sale time.  So a small firm making $150k/yr profits after advisors comp can get a cool million.  Try selling a b/d book doing the same numbers and you'd be hard pressed to get $250k at sale date.


Lastly, remember the best reason to go RIA is your business will grow much faster.  When RIAs go head to head with RJ, wirehouses or banks - even retarded RIAs will often win; simply because they are the only ones who can back up their trustworthyness with real fiduciary responibilities.  Consumers know everyone will say they're honest and won't mislead them; but RIAs have to walk the talk.


Good luck!