Join Wire House HNW Team or Ind RR With Established Book?

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Mar 31, 2011 2:53 pm

Hello Folks,

I'm new to the forum and the business...sort of.  I started a part time alternative practice 2 years ago offering private equity transactions (finders agreement) and Life Settlements (LS) to accredited investors.  I've had a reasonable amount of success establishing 20+ clients and $5M in sales. 

I'm now at an inflection point due to several factors, soft LS business and limited equity offerings with my PE firm which also is a BD.  Have my 63 license, studying for the 7.  I have an inside track to ML HNW team with $350M AUM and will have formal interview, tests etc. shortly.  On the other hand, I am in discussions to partner with a peer who has 20 years in the business and is ready to pull back provided he can find someone to complement him.  His profile:  independent BD, well established Insurance business, focus on alternatives, strong lead generation model, office support staff.  Not sure of AUM or number of clients yet, I suspect most of the business outside of insurance is transactional based. 

I would need financial support in the first year or two to bridge the gap from my previous life outside of financial services. 

Thanks for your input.

Apr 16, 2011 12:26 pm

I'll be brutally honest (having worked at ML myself) about their concept of "teaming."  99% of all teams there are miserable failures for one major reason - the senior guys want nothing more than to leach off of the junior guy they bring in and promise the world to.  I'm sure it's not unique to ML, in fairness.  A successful team and partnership is very rare and remember that this team is not asking you to join them out of the goodness of their heart.  They want to take a percentage of what you bring in and depending on the number of FAs, you're probably looking at no more than 50% at best of what you bring in.  Couple that with the insulting payout you get at a wire firm.  If you have $100 mil under management and are charging 1% on avg on all of it, you're looking at 1 million in revenue.  At an indy firm, you're taking home $900,000 a year.  At ML, that number is more like $400,000.  ML will tell you that the lower payout is because you have the privileged access to an amazing system that works from day one.  While that's partially true and their system is quite nice, you can personally spend about $10-20k a year TOPS on the indy side and have a fully-integrated technology platform that would blow ML's out of the water.  You also appear to have an existing indy office already in place, so your overhead is little to nothing - best of both worlds.

Longer term- this business is all about personal options.  For me, I'd rather call my own shots and not have to worry about fighting it out with some group of advisors at ML if I decide to leave one day.  That's a nice advantage to being indy - you own your client relationships, bottom line. 

Also, $350 million is not that big for a team at ML - it's a nice book, don't get me wrong, but chances are much of that money is not fee-based investment money with a high velocity on the assets.  ML counts loans, mortgages, securities based lending, and other non-paying dollars as part of the AUM equation.  I'd check into the exact nature of their book.  If they've got $300 of that invested in the PIA system and are running their own money for clients, that's a big difference than a team with $300 mil in institutional lending and mortgage loans.

Apr 18, 2011 11:19 am

Nova, although I don't disagree with your assertion on teaming at the wires, your numbers are a lkittle whacky.

AT ML, your total compe at $1mm production would be more like 55%, not 40% (considering payout, bonuses, deferred comp, 401K contributions, medical/dental, etc.).  In addition, they pay for everything (mostly).

As an indy, your PAYOUT might be 90%, but then you have to factor in all your overhead.  A $1mm indy producer is not doing it by himself.  I would estimate total comp at 55-75% as an indy.  So your "40% vs. 90%" is pretty over-blown.

Apr 19, 2011 9:48 pm

[quote=B24]

Nova, although I don't disagree with your assertion on teaming at the wires, your numbers are a lkittle whacky.

AT ML, your total compe at $1mm production would be more like 55%, not 40% (considering payout, bonuses, deferred comp, 401K contributions, medical/dental, etc.).  In addition, they pay for everything (mostly).

As an indy, your PAYOUT might be 90%, but then you have to factor in all your overhead.  A $1mm indy producer is not doing it by himself.  I would estimate total comp at 55-75% as an indy.  So your "40% vs. 90%" is pretty over-blown.

[/quote]

I think that's fair.  The plain vanilla grid at a wirehouse for a million-dollar producer is basically around 42-43% at my last look - yes, they do "pay for everything" in a way, but not everything.  A lot of these producers still kick in loads of their own dollars in marketing expenses.  While there is a meager 401k match, it probably won't add 10% to the overall payout.  The deferred comp is really the big deal, but many producers at these firms realize that deferred comp is a) a set of golden handcuffs and b) subject to the price of the firm's stock - see 2008. 

For indy's, many producing above $1 mil are getting closer to the 100% payout range from their B/D.  If you can collect $900+ on that production, I'd say reasonable investments back into the business might be in the 200-250k range all said and done, but again depends on the advisor and what type of operation he/she runs.  The big attraction from my POV of course is that the indy advisor has much more control over those costs than being forced to pony up more out of their grid to a wirehouse, not really knowing what he/she is paying for. 

Also, do NOT underestimate the tax benefits as well.  When most advisors at wires are phased-out for business expense deductions, that's a huge difference.  I would speculate that the tax benefits to the indy advisor would increase that final "comp" figure to close to 2.5 to 3 times what he/she would receive at a wire.

Apr 20, 2011 3:34 am

For me, I'd rather call my own shots and not have to worry about fighting it out with some group of advisors at ML if I decide to leave one day.  That's a nice advantage to being indy - you own your client relationships, bottom line. 

Apr 20, 2011 10:24 am

[quote=Nova02]

[quote=B24]

Nova, although I don't disagree with your assertion on teaming at the wires, your numbers are a lkittle whacky.

AT ML, your total compe at $1mm production would be more like 55%, not 40% (considering payout, bonuses, deferred comp, 401K contributions, medical/dental, etc.).  In addition, they pay for everything (mostly).

As an indy, your PAYOUT might be 90%, but then you have to factor in all your overhead.  A $1mm indy producer is not doing it by himself.  I would estimate total comp at 55-75% as an indy.  So your "40% vs. 90%" is pretty over-blown.

[/quote]

I think that's fair.  The plain vanilla grid at a wirehouse for a million-dollar producer is basically around 42-43% at my last look - yes, they do "pay for everything" in a way, but not everything.  A lot of these producers still kick in loads of their own dollars in marketing expenses.  While there is a meager 401k match, it probably won't add 10% to the overall payout.  The deferred comp is really the big deal, but many producers at these firms realize that deferred comp is a) a set of golden handcuffs and b) subject to the price of the firm's stock - see 2008. 

For indy's, many producing above $1 mil are getting closer to the 100% payout range from their B/D.  If you can collect $900+ on that production, I'd say reasonable investments back into the business might be in the 200-250k range all said and done, but again depends on the advisor and what type of operation he/she runs.  The big attraction from my POV of course is that the indy advisor has much more control over those costs than being forced to pony up more out of their grid to a wirehouse, not really knowing what he/she is paying for. 

Also, do NOT underestimate the tax benefits as well.  When most advisors at wires are phased-out for business expense deductions, that's a huge difference.  I would speculate that the tax benefits to the indy advisor would increase that final "comp" figure to close to 2.5 to 3 times what he/she would receive at a wire.

[/quote]

http://cdn.onwallstreet.com/media/pdfs/bestpay2011.pdf

Average payout at all firms is slightly over 50% for $1mm producers, including bonus/deferred comp, not including 401K match/profit sharing/expense account.