Does this seem accurate?

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Oct 24, 2008 12:52 pm

"But according to a Tiburon Strategic Advisor study, more than half of independent advisors report annual revenues of less than $250,000 per year. Clearly, there is a disconnection between advisors' expectations of what they should be earning and what is actually coming in the door.

At least 95 of 100 advisors could tell me off the top of their head what their gross production was last year, but the same number would struggle mightily to tell me their net production. As an independent producer, you incur the same expenses as any other small business owner—office rent, supplies, assistants' salaries and benefits—in addition to expenses specific to your profession, such as ticket charges for stock, bond and mutual fund transactions.

Average expenses for independent advisors typically range from 40% to 60% of gross production. Under that assumption, if your annual gross production last year was $250,000 and your total expenses were $125,000, your net revenue was $125,000. "

 
This sort of contradicts what I hear on this forum.  Usually it's "oh yeah, my payout is 95% and I take home 80%".  I am just curious where the disconnect is between a scientific study and rumor on a web forum.  Not trying to be flippant, but it changes how you view independance to a degree.
 
This came from Financial-Planning.com.
Oct 24, 2008 1:02 pm

B24, our office nets (free cash flow) about 50% of total revenue.  We have pretty high expenses with a new, large office that we built, a full staff, and all new equipment. 

According to my LPL stats, the average practice our size nets about 56% after all expenses. 

Oct 24, 2008 1:51 pm

I pulled our income statement... here's what we had:





 
81.98% gross profit margin.
 
We are a 5 principal firm, with 2 employees (one advisor, and one support).  My experience is that people generally over-spend when creating and maintaining their practices.   Our profit margin includes everything (business taxes, insurances, license expenses... everything).
 
I'm not sure where they get their information, but I do believe it.  1/2 is most likely at a 50% gross profit margin, and then there are the rest of us at an 80 to 85% profit margin.  We do, however, have a larger practice than most allowing us to leverage our size for cost reducation where others may not have that opportunity.
 
Those are our numbers.  We are an RIA, and have no 'payout' from a BD to worry about.  Our 'payout' is only determined by our own ability to maintain costs, and increase revenues.
 
C
 
Oct 24, 2008 4:50 pm

Yeah, I think RIA's tend to have larger margins than indy advisors.  I think this article addressed indy BD advisors specifically.  Because you're right, there are added layers of cost when using a BD (product payouts, BD payouts, low profit products vs. high-profit products, etc.).  As an RIA, your profit is defined by the size of the client.  As an Indy, you may have a client with $2mm all in individual muni's, paying you nothing.

Oct 25, 2008 12:00 am

We are a 3 broker firm with 1 assistant. We net 70% on our business. I think a lot of businesses might over allocate on the expenses that could bring down the net. I don't see however how you could be independent and have 60% of your production for expenses....


That figure seems highly suspect. 
Oct 25, 2008 12:18 am

I'd like to see the methodology in that study.  I know RIA Advisors netting profit margins between 1/2 to netting close to 85 - 90% ++ after expenses.  The variance can be huge considering all the nuances of each practice.

 
I agree with the earlier comments, the business models (Broker/Dealer, Fee-Only RIA, Hybrid Advisor, etc., etc.,) may have an impact on the net net figure at the end of the day depending on how the practice is structured.
Oct 25, 2008 1:45 pm

It might be correct - there are tons of really small and even part-time producers who are independent.  Since there are fixed costs such as E&O, technology, registration costs, rent, etc.  If your production were only $100k, I can see where someone would be making less than 50%. 

 
As for me, I net about 57%, but I'm incredibly staff heavy, as I'm out of the office about a quarter of the year, either at my second home or travelling.  I've got two full-time registered assistants and a full-time receptionist/clerk.  I was planning on recruiting another broker or two to come in with me, to leverage my fixed costs a bit more - but that's also a lot of hassle.  I've got a pretty sweet deal as it is...
Oct 26, 2008 3:05 pm

my office is 81% after LPL haircut and ticket charges, then drops to 62% NET after local branch, staff, and marketing expenses.   If can hit my goals, once market picks back up will be at 65% all day pushing 68-70% net.

 
Overall more than 50% better than wire's, plus all the tax deductions.  I still had business expenses after being paid the 40 bp at AGE, so net there was closer to 37%.
 
 
Oct 26, 2008 9:37 pm

Since many expenses are fixed, the total payout has more to do with your total production than anything else.  Obviously the higher your production, the larger your percentage net payout will be.  Without knowing an indy advisors total gross, knowing their net percentage is useless.  So give us your gross guys.

Oct 27, 2008 2:37 pm

I net a little over72%.  And CONTENT!

 
But my comfort is knowing I am indy and I do not have to go through the crap hole the big firms are taking some of you guys through!  
Oct 27, 2008 3:53 pm

We are a two broker firm with one assistant and we net about 70% after all expenses.  Lately we have been spending more on beer and other pain killing drinks--but otherwise it is about 70%!  We are with LPL!

Oct 27, 2008 4:39 pm

Yeah, the Beer and Aspirin discretionary receipts are really starting to stack up.  

Oct 28, 2008 8:46 am

no kidding. business has died. i'm with LPL also. I guess I'll enjoy the holidays more so than in the past. Not much else to do! Are you other guys as dead as I am?

Oct 28, 2008 10:12 am

The markets might be dead, but I'm busier than I've ever been.  No hope for the holidays.  

Oct 28, 2008 11:13 am

I'm busy.  Revenues are a little off-ish, but more new referrals coming in than I can remember at any time in the past.

Oct 28, 2008 12:08 pm

My business has picked up because I've picked up my activities.  EZ...get on the phone..call clients, prospects, your sister....We have (are you with LPL) a tremendous amount of short to intermediate term Tax frees right now over 5%.   A good conversation piece...

Oct 28, 2008 3:38 pm

Like Spears, my muni business is incredible.  I have sold more munis in the past 3 months than probably all of 2007.  I actually have clients calling ME for updates on muni rates as they find money.  I actually have gotton some clients into frenzies - trying to cash out of their CD's at the bank to get into these muni's.


It really is (probably) a once-in-a-lifetime buying opportunity if you are looking for yield in all products.  When was the last time we saw prices of anything like this (equities included)?  Even in 2000-2002, stock prices came ALMOST back to tolerable P/E levels after the collapse.  That wasn't even a real buying opportunity (unless of course you were waiting for it).
Oct 28, 2008 3:42 pm

This is a Joe the Plummer question.  If you gross $250,000 you will net 50% after expenses or $125,000. I gross 83% on average but take home after expenses is around 50%.  Secretary still wants to be paid and my landlord wants his chunk of flesh.

 
IndyEDJ
Oct 29, 2008 8:36 am

are you selling to prospects or existing clients. Because it seems as if prospects are still on the fence.

Oct 29, 2008 10:26 am

EZ-

You're right.  This is mostly clients with moeny at banks in CD's, savings, etc.  They already know me so it's a no-brainer.  But for prospects that don't know me well, I think the trust meter just got kicked down a notch the past 6 months.  So it's tough to "sell" much to prospects right now, unless you stumble upon muni buyers with cash to spare.  And it's tough to explain a bond swap to a prospect if you don't have their portfolio in front of you.