Need Indy Guru Advice! Looking before leaping

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Feb 21, 2009 11:00 pm

I'm an AGE / Wach Rep, tired of the drama, ready to make a move.  Have been offerred 380k upfront from another wirehouse.  But Independence looks beter for the long term.  So....looking for some front end advice from you indy gurus!

 
TWO BIG QUESTIONS
1) AM I CRAZY TO TURN DOWN THE 380k to go Indy? 
2) WHICH INDY FIRMS SHOULD I INVESTIGATE - MIGHT BE A GOOD FIT FOR MY BIZ?
 
Here's a description of my business:
25 mil in assets
350k t12

200k in recurring revenue (100k fee based, 100k trails and monthly investment plans)
80% of revenue comes from about 100 clients.  These clients average about 200k per HH.
 

I use three primary products / services to execute these plans:
 1)  Annuities - mostly Jackson and Met
 2) Fee Based -- Mf wrap programs at 1.5%, ETF manager at 2.25%  
 3) Managed futures 
 4) C share mutual funds
 
I NEED A FIRM THAT WILL GIVE ME:
1) FULL payout from annuties - no haircuts. Handles JNL, Met, lincoln, paclife
2) A logical replacement for my managed ETF accounts with 2.25% payout.
3) Handles managed futures with frontier, grant park, and global macro.
4) A culture that supports ongoing financial planning and portfolio guidance - with PRT tools that breakdown asset classes (not just funds, stocks, etc), and preferrably incorporate the annuities subaccounts into the reports (vs just saying "annuities" - although this may be a dream!)
 
May be giving you more than you want - but you guys always want details!  Thanks for the help!
 
The Eggman.
 
Feb 22, 2009 12:56 am

Something is not right about your "facts"

First of all, what firm is offering you 110% of your t-12 up front, when you are doing $350 - a number that no wirehouse is really interested in any more.

Second of all - if you have 200k in recurring revenue, even if you are averaging 1.25% on your RECURRING, that means about $16MM in recurring. Which leaves you another $9mm to do the other $150k. So your ROA on the non recurring is 1.7%. In this market, a 1.7 roa on transactional business.

Feb 22, 2009 10:08 am

the best thing you can do is use an independent recruiting firm to represent you to BDs and negotiate for you. This is all done anonymously. I recently changed BDs and did this. They shopped the BDs for me, found the best one that fit me and my partner's business mix and then negotiated the upfront money for us. It was a very smooth and easy experience for us and we didn't have to go research a 100 different firms to figure out which ones fit us. They did that for us. If you'd like their info, PM me.

Feb 22, 2009 10:57 am

Hey seriously leave... call advisors/buy an ad... stop being a punk...

Feb 22, 2009 8:09 pm
Thanks for the reply sportsfreak...assume you are puzzled, trying to get a clear picture...
 
1) Yup, that's the offer -- mostly to 400k brokers in my area from multiple wirehouses -- SB, UBS, RBC.  But I suppose the mgr thought my teeth were white enough, so I squeeked in.  Probably liked the recurring rev.   
 
2)  And yes, with the downturn this year clients and prospects were very interested in annuities, so I did quite a bit of this biz this year, and took the upfront money to offset losses in fee revenue.   I guess you could say my production is a bit "inflated" this year.  I expect I'll hit 250 -300 in 2009, depending on how much new biz I bring in.
 
 
Feb 22, 2009 8:29 pm

Point number 2 i get. As far as the offer, just curious - what area are you in? i am in the tristate ny area, and ubs wont even talk to a 300k producer, while Wachovia will offer 50% o up front if you're lucky. I am at SB so SB and MS are out, but i know that SB is not real interested in a 300k producer at all, unless 5 yrs los, and MS in my area will also only talk to 4-500k maybe offer 300k a 50% deal at most.

My production is in the same ballpark as yours, 320k t-12, 9 ys LOS with 75% fee  based, spent 3 years in branch management, and no way i would take a check for 50% or even 100% to go to another wirehouse. But different strokes......

Feb 22, 2009 10:04 pm

sportfreakbob -- I'm in midwest.  Which explains the difference. 

 
I'm awful tempted to go with the upfront money -- but my gut tells me there's no better time to go independent.
 
Why would you not take 100% to go to another wirehouse?
Feb 22, 2009 10:25 pm

Because nobody knows who will own who a year from now, and nobody even knows how they will be run. I am convinced, that payouts will continue to come down, not only for the lower producers, but for the mid to higher level guys as well, with all the retention money being given out.

The culture of the firms is in direct conflict with the culture of the brokers. Its every man for himself.
Also, i dont want to have anybody own me, whether its a wire or regional or indie - if they give you a check in return for signing a 9 year deal, you are owned. (to borrow a phrase from one of our esteemed colleagues)

Feb 23, 2009 10:37 am
eggman:

sportfreakbob -- I'm in midwest.  Which explains the difference. 

 
I'm awful tempted to go with the upfront money -- but my gut tells me there's no better time to go independent.
 
Why would you not take 100% to go to another wirehouse?
 
eggman,
 
I'm Midwest also.  While I understand the money is tempting, keep this is mind...whatever the wire gives you, they intend to get back at least double in profits FROM you.  In light of that, it's apparent to me that unless you know your production is going into the crapper and will likely never recover, why on earth would you sell your soul for so little?  Let's say your production averaged $300K for the foreseeable future, and that a wire would pay 35% (which given the trend for us low-end producers, is probably charitable) while you could make 70% as an independent.  Let's furthermore say that your production averaged 20% less as an independent (just to be conservative).  That is an annual income of $168K as an indy vs. $105K as an employee.  Even setting aside the tax benefits of being independent (again, to be conservative), you will recover the up front money in six years.  Aside from not dealing with all of the BS that management will give you over the rest of your career, starting in year seven (conservatively), you will make considerable MORE as an independent than you will as an employee.  The final bonus is that you control what happens to your book when you retire, which can either mean setting up a child or children in the business or cashing out a nice lump sum.
 
Unless you simply have no ability to run your own office, based on what you've told me, why WOULDN'T you go independent?
Feb 23, 2009 2:00 pm
iceco1d:

You charge 2.25% for your ETF portfolio?!  Holy shat! 

 
Yeah that is a ton... I wish I could charge that... but the whole morals thing gets in the way..
Feb 23, 2009 10:04 pm
Squash1:
iceco1d:

You charge 2.25% for your ETF portfolio?! Holy shat!



Yeah that is a ton... I wish I could charge that... but the whole morals thing gets in the way..





yeah eggguy, you ought to be really careful charging those fees. As soon as another advisor gets to peak at that statement, expect the 412 notice to follow.

Feb 23, 2009 10:27 pm

Indyone, yeah, I hear you...but the thing that concerns me is whether or not I would realistically net 70%.  On conservative 250k production, let's assume 85% payout of 200k after ticket charges etc, then 50k in overhead, then another 50k for an assistant.  That leaves just 112k net, or about 45%.  True, better than a wirehouse, but not much.  So... help me out, where do you get to 70%?

Feb 24, 2009 12:37 am
eggman:

Indyone, yeah, I hear you...but the thing that concerns me is whether or not I would realistically net 70%.  On conservative 250k production, let's assume 85% payout of 200k after ticket charges etc, then 50k in overhead, then another 50k for an assistant.  That leaves just 112k net, or about 45%.  True, better than a wirehouse, but not much.  So... help me out, where do you get to 70%?

 
Well, for starters, 85% of 250K is more than $200K.  Plus, I have a P/T assistant that costs far less than the $50K you quote.  You can control other expenses by sharing office space (I share with a group of accountants).  Also, as your numbers get larger, so does the percentage that you can take home...I'm working off $300K vs $250K.  The financial benefits were just icing on the cake, but as your numbers get larger, this benefit will far outweigh the 30 pieces of silver you are being offered today.  If you take the money, I'd lay pretty strong odds that there will come a day when you regret doing so.
Feb 24, 2009 4:29 am

--

Feb 24, 2009 8:54 am
eggman:

Indyone, yeah, I hear you...but the thing that concerns me is whether or not I would realistically net 70%.  On conservative 250k production, let's assume 85% payout of 200k after ticket charges etc, then 50k in overhead, then another 50k for an assistant.  That leaves just 112k net, or about 45%.  True, better than a wirehouse, but not much.  So... help me out, where do you get to 70%?

 
The financial equation depends very much on your expectations of growth. If you anticipate generating only 250k for the forseeable future, then it would be hard to make a case for going indpendent on just financial metrics. (Ignoring for the moment the emotional sense of job satisfaction that most indepedents report, vs the obvious and seemingly growing frustrations reported every day in this forum by wirehouse FAs)If, however, you anticipate growing your revenue back to 350k and on to 500k, then the metrics turn in favor of going independent.
 
The reason is the fixed cost leverage inherent in the independent model. Your anticipated overhead of 100k is enough to run a 500-600k business easily. So as an independent as your revenue grew, your net grows exponentially. As opposued to a wire-employee were your net is static at 35-40%.
 
At 250kx85% - 100k = 100k net (45%)
At 350kx85% - 100k = 197k net (56%)
at 500kx85% - 100k = 325k net (65%)
 
Hope this helps.
Feb 24, 2009 11:01 am

eggman...i work for an independent shop that has some offices in the midwest-KS, OK and IL to more exact and they offer a really good deal for guys looking to make the jump from the wirehouse channel to the independent side. most of the guys we've been seeing lately are AGE/Wachovia guys. the culture seems to be reflective of AG but on a smaller scale...kind of like AG 30 years ago some might say. i came from AG and really enjoy being here.

Feb 24, 2009 11:12 am
Northfield:
eggman:

Indyone, yeah, I hear you...but the thing that concerns me is whether or not I would realistically net 70%.  On conservative 250k production, let's assume 85% payout of 200k after ticket charges etc, then 50k in overhead, then another 50k for an assistant.  That leaves just 112k net, or about 45%.  True, better than a wirehouse, but not much.  So... help me out, where do you get to 70%?

 
The financial equation depends very much on your expectations of growth. If you anticipate generating only 250k for the forseeable future, then it would be hard to make a case for going indpendent on just financial metrics. (Ignoring for the moment the emotional sense of job satisfaction that most indepedents report, vs the obvious and seemingly growing frustrations reported every day in this forum by wirehouse FAs)If, however, you anticipate growing your revenue back to 350k and on to 500k, then the metrics turn in favor of going independent.
 
The reason is the fixed cost leverage inherent in the independent model. Your anticipated overhead of 100k is enough to run a 500-600k business easily. So as an independent as your revenue grew, your net grows exponentially. As opposued to a wire-employee were your net is static at 35-40%.
 
At 250kx85% - 100k = 100k net (45%)
At 350kx85% - 100k = 197k net (56%)
at 500kx85% - 100k = 325k net (65%)
 
Hope this helps.
 
 
I agree with you that as you grow your business your net grows exponentially and thus it makes sense to move... But two more points..
 
$100K overhead, seems way to high, and if you have that kind of overhead, or want that kind of overhead you should stay where you are..
 
Second, the wires are always going to be moving the numbers, increase in production or lower payout... only on accounts larger than $100K...then $250K... The indy number don't change.
Feb 24, 2009 10:49 pm

This is great stuff guys.  I truly appreciate your comments.   I've been doing a lot of thinking / looking the last couple days, and am strongly leaning toward the indy side.  Now the question is to go FINET (wachovia's indy channel - and I am currently a Wach rep), or another indy.  So, here's the trade off it seems to me:

 
UPSIDE of FINET:
1)  I can transfer into the finet channel without fear of the office trying to pilfer my book - should retain 95% of my book.  If I don't like it, I can always transfer to another indy later without fear of pilfering.
2) I don't have to change all my investments - a particular concern for my wrap and sma accounts.
DOWNSIDE of FINET (upside of going with another indy)
1)  FINET has a slightly lower payout than others - 85% - and only 75% the first year
2)  I assume they'll haircut my annuity biz just like they do at Wach
3)  FINET takes a 35bps (or is it 25?) off the top of my fee based business.  Not sure if other indies do that as well or not.
 
Any other trade off's you all see - or spin it this way -- what would you see of the advantages of going to another indy apart from FINET / Wach indy channel?
Feb 24, 2009 10:53 pm

Sal, tell me who this might be, and it is fine if you are a recruiter.  You can pm me if you want, and let me know your contact.

Feb 25, 2009 12:56 am
eggman:

This is great stuff guys.  I truly appreciate your comments.   I've been doing a lot of thinking / looking the last couple days, and am strongly leaning toward the indy side.  Now the question is to go FINET (wachovia's indy channel - and I am currently a Wach rep), or another indy.  So, here's the trade off it seems to me:

 
UPSIDE of FINET:
1)  I can transfer into the finet channel without fear of the office trying to pilfer my book - should retain 95% of my book.  If I don't like it, I can always transfer to another indy later without fear of pilfering.
2) I don't have to change all my investments - a particular concern for my wrap and sma accounts.
DOWNSIDE of FINET (upside of going with another indy)
1)  FINET has a slightly lower payout than others - 85% - and only 75% the first year
2)  I assume they'll haircut my annuity biz just like they do at Wach
3)  FINET takes a 35bps (or is it 25?) off the top of my fee based business.  Not sure if other indies do that as well or not.
 
Any other trade off's you all see - or spin it this way -- what would you see of the advantages of going to another indy apart from FINET / Wach indy channel?
 
I am going through the same thought process. Sent Proforma today.Look for a Executive Suite building. I found 3 at 1500 per month with Reception , conference and kitchen. Even at 500-600 that's all I need. All the indy's I looked at had the same ticket charges and admin fees.