Need help convincing a Merrill guy to go RIA

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May 28, 2009 10:11 am

I work for an RIA now, and am considering leaving to start a new RIA.  I have someone who is a Merrill broker who I would like to come with me. 

I'm going to point out all of the normal reasons why he would want to leave Merrill - anyone have any other recommendations?

Also - he's within 10 years of retirement - I don't know how Merrill works for someone who retires, do they have any specific retirement benefits he would be giving up by leaving (or is his retirement just the sale of his book?)?

Any other recommendations would be appreciated.  Thanks..

May 28, 2009 11:00 am

Man, unless he could really monitize the assets he brings over at retirement, I don't know that I would leave with only 10 years left.  You would have to give me some compelling reason to leave at the point. 

 
Merrill does (I think) a 3 to 5 year buyout of your book.  So what happens is, you retire, and for the next 3-5 years, you receive a % of the gross.
 
Point is, from a pure financial standpoint, the additional payout of an RIA may not be worth the effort of doing it.  First, it would take some time to move it over.  Second, not all of it would move, so you would likely have to build it back up, and then you only have 7-9 years to get the increased payout (which depending on his benefits, deferred comp, expenses, etc., may not be a huge difference).
 
If he had like 15-20 years left to work, it would probably be a no-brainer.  But it would be  tough sell for only 10 years.  I think you would have to negotiate some sort of "enhanced" retirement buyout agreement from him to make it worth it.
May 28, 2009 11:51 am

Thanks for the thoughts.  To be honest, I have no idea how long he has, 10 years is only a guess by me.

If it's just a 3-5 year buyout of his book, I would likely be doing the same thing when he did decide to retire to buy his equity in the business, which is his book.  Whether it was 2x the revenue his AUM was producing or whatever, I would think what I would pay him would be very comparable to what Merrill would pay.

I was more worried that Merrill had like a pension type program where he would be able to sell his book, but also get a pension benefit from Merrill for his lifetime, which would be to tough to pass up.

Thanks again.  Keep any info coming guys..

May 28, 2009 12:05 pm

Why not offer to buy his book when he retires, since Merrill is going to give him 3-5 at a certain percentage. Offer him a higher percentage over a longer time(or upfront).

May 28, 2009 12:21 pm
chief123:

Why not offer to buy his book when he retires, since Merrill is going to give him 3-5 at a certain percentage. Offer him a higher percentage over a longer time(or upfront).


Do you mean to buy his book when he retires, but have him stay at Merrill until then?  Or, set up an agreement where he comes with me now and we already have an agreement in place where I would buy his book when he retires?

If you meant the latter, that's what I would plan to do.  Have him come with.  He could enjoy the last 10 years or so of his working life not having to worry about being under Merrill orders, and slowly transition some of his clients to me with me eventually buying the whole thing.

May 28, 2009 12:26 pm

Follow-up question - about how much would a Merrill guy get for his book?

(sorry, my only background is as an RIA, so I don't know how their payouts work, and how that translates into a book value).

I don't know what his production is, but if he's producing 500k, that means he's likely getting paid out 200k, right?  How much would that book of business get in a sale (approximately).  Thanks a bunch.


May 28, 2009 12:57 pm

Look at it this way...

 
Once he retires, he will get a certain % of the gross off of his book for 3 - 5 years.  If he comes with you now, he will own part of the RIA (which is an asset in and of itself).  You can also offer to pay him 50% of his gross for life once he leaves.
May 28, 2009 1:10 pm
eman07:

Follow-up question - about how much would a Merrill guy get for his book?

(sorry, my only background is as an RIA, so I don't know how their payouts work, and how that translates into a book value).

I don't know what his production is, but if he's producing 500k, that means he's likely getting paid out 200k, right?  How much would that book of business get in a sale (approximately).  Thanks a bunch.


 
You present yourself as somewhat of a whore. Why don't you ask HIM what it would take to convince him to join you? HE's the only one that knows the answer.
May 28, 2009 1:16 pm
eman07:

Follow-up question - about how much would a Merrill guy get for his book?

(sorry, my only background is as an RIA, so I don't know how their payouts work, and how that translates into a book value).

I don't know what his production is, but if he's producing 500k, that means he's likely getting paid out 200k, right?  How much would that book of business get in a sale (approximately).  Thanks a bunch.


 
They don't get anything for their "book".  They get a % of the actual gross that is produced by their book in the years following their retirement.  For example, a friend of mine retired from Merrill about 4 years ago, and gave the book to his son.  He got 80% of gross the first year, 60% the 2nd year, etc.  Don't quote those %, I just know the basics of how it works.  Jones has a similar program over 4 years (or less depending on book size).
 
So if my friend was producing 500K, he would have gotten 400K gross in year one (at the grid rate for his net, so say 160K).  So for the total buyout, maybe he gets 450K net or so over those years.  I am just guessing at the numbers.
 
If it was annuitized business, maybe he would have received like twice that to sell the book?
May 28, 2009 1:18 pm
HAAIC:
You present yourself as somewhat of a whore. Why don't you ask HIM what it would take to convince him to join you? HE's the only one that knows the answer.


Okay..  Don't really know why that was necessary.

All I'm trying to do is a get a feel for what to expect when I DO ask him that questions.  I don't know what about that makes me a "whore", but if you say so...

May 28, 2009 1:22 pm
B24:
They don't get anything for their "book".  They get a % of the actual gross that is produced by their book in the years following their retirement.  For example, a friend of mine retired from Merrill about 4 years ago, and gave the book to his son.  He got 80% of gross the first year, 60% the 2nd year, etc.  Don't quote those %, I just know the basics of how it works.  Jones has a similar program over 4 years (or less depending on book size).
 
So if my friend was producing 500K, he would have gotten 400K gross in year one (at the grid rate for his net, so say 160K).  So for the total buyout, maybe he gets 450K net or so over those years.  I am just guessing at the numbers.
 
If it was annuitized business, maybe he would have received like twice that to sell the book?


VERY helpful.  Thank you so much!

May 28, 2009 2:13 pm

If your friend is concerned about losing a portion of his production due to some commission assets he worries about leaving behind, you and your friend might consider a Hybrid Advisor option whereby you remain fee-only while your friend is affiliated with a broker-dealer firm while also operating as an investment advisor representative under your own RIA.  I'm not sure what percent of his book is commission business though. 

May 28, 2009 11:29 pm
eman07:

I work for an RIA now, and am considering leaving to start a new RIA.  I have someone who is a Merrill broker who I would like to come with me. 

I'm going to point out all of the normal reasons why he would want to leave Merrill - anyone have any other recommendations?

Also - he's within 10 years of retirement - I don't know how Merrill works for someone who retires, do they have any specific retirement benefits he would be giving up by leaving (or is his retirement just the sale of his book?)?

Any other recommendations would be appreciated.  Thanks..



I would ask the question why would you like for this person to come over with you?  Will he be an employee or partner?  I assume partner.  There is compliance risk you will need to manage, which can be very different for employees vs. partners. 

With you own RIA you should also do a detailed profit analysis.  It may show that you both will make more money now vs what you will get in 10 years.  Lastly some of the suggestions about a laddered payout when buying his book is a good idea. 

Good Luck

ash
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