Question for Indi's

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May 16, 2009 10:52 am

I have a goal of going Indi in 5 years.  I'm just putting together some rough ideas right now to figure out where I'd need to be on my production to support going Indi.  My plan is to purchase a building in a trendy part of town, remodel it, and own it under a seperate company name, then lease it to my Indi business.  I'd like to have a very upscale office.  Would those of you that have gone Indi tell me if my numbers are realistic, way off, and what I've left out?  This is just an educated (and somewhat uneducated) guesstimate right now.  The monthly expenses seem much higher than I expected, but I wanted to be conservative on my numbers and I have no idea what the proper salary for a registered assistant in the midwest is.


Monthly Expenses


 

 
 
Startup Costs
 


 
Takehome Pay


 
May 16, 2009 11:13 am

I think that you are way off on your estimate of what it takes to get an upscale office remodel. I would say $100,000 for that line item. We had an estimate for $250,000 for 3500 square feet of remodel in order to get 'A' space.



The printer will not run $4,000. I'd say $500 to $700 for an HP laser printer. Way off on that... you don't need to go crazy with the printer. Outside consultant and legal will run $10,000. Your copier should function as a scanner. Also, don't forget the costs of research (i.e. Morningstar) for $3,000 per year. I think your compliance costs are a bit light - should be $3,000 to $4,000 per year - And, don't forget about your legal expenses for setting up your LLC - another $2,000.



Where are your 401K contributions for your assistant? 3% of their wages in order to meet the top heavy requirements. Also, your 'benefits' number needs to be increased, since healthcare expenses, alone, will run $700 per employee, including yourself.   Also, don't forget about paying the other portion of your assistant's Social Security taxes, including your own (now that you would be responsible for both sides). Also, don't forget about your state business taxes, etc.    I'm not sure you need a quote service for $200 per month.   I'm also assuming that your 'decorating' line item includes office furniture? If not, you might add a few more $$'s.



Edit: I noticed your income figures (you must have edited your post?) - if you go with an Independent BD, you don't need to have a compliance consultant.



But, from your comment about 'SEC' registration, you were planning on going full RIA? If so, your starting payout numbers aren't correct. Your payout starts at 100%, not 80 or 85%.



C

May 16, 2009 11:17 am

What kind of printer are you getting for $4k?

May 16, 2009 11:26 am

Also, double check the indy payout. If you do alot of trading, ticket cost may lower that to 75%. That payout number can vary ALOT.



I agree with Captain, some of the numbers seem too low. Remodeling can cost quite a bit, especially if you change something mid project (which you will once you see it start forming)



Have you run the numbers if you go indy now on the cheap (ie using an exec office suite, or under another rep).



Also, in 5 years, compliance cost may be way up (hopefully not)





May 17, 2009 9:30 pm

OS, as a midwest indy, I can give you some pretty good info, although assuming you are in a larger metro area than I am (which is very likely), some of my numbers will be light.

 
Captain is right on in several areas...as someone who is in the process of purchasing and remodeling my own space, I have been spending a considerable amount of time researching a lot of these things.  Here's what I think...
 
$500-700 for an HP color laser is pretty close...and they are MUCH smaller than they used to be.
 
On space, I am in the process of closing on a commercial office property right now.  The office was used by a local chiropractor who went out of business.  It's about 1400 square feet with a partial basement and will need extensive remodeling before I am finished.  The property was listed at $88,900 and we settled at $62,500, which is apparently just enough to clear the mortgage.  I will put close to another $60,000 into it to replace all the windows and doors and remodel enough space for two offices, two bathrooms, a reception area and a conference room.  Room for an employee lounge and space for another assistant and advisor office, as well as the basement will be left alone for now.  While it will be nice, IMO it will hardly qualify as "upscale" at that level.  I would say that Cap's $100K estimate is probably closer to reality, depending upon how much space you are talking.  My space allows for up to three advisors and two assistants comfortably.  You may ultimately want more or less space, but if you get too small, it's hard to look "upscale".  I think it's a great time to buy commercial real estate, but you may not want to right when you go indy (see comments below).
 
Cap's also right on compliance.  My compliance costs are mostly "soft" costs (lost time dealing with compliance B/S, etc.)  I really can't think of much in the way of specific compliance costs.
 
Areas where I differ with Cap in my opinion...
 
Healthcare - I of course have to cover my family, but fortunately, my assistant gets her family coverage from her husband's employer.  I have no plan to offer healthcare coverage, but I never say never...someday I may not have a choice.
 
Quote service - Many B/Ds offer at least some kind of real time quotes.  Certainly, if you want something that blinks red and green constantly, you may have to spring for a quote service, although if it's just for show, you can get delayed quote streamers for little or no cost.
 
Research - I get Morningstar (online version), InvestmentView, Zacks, and S&P for about $140/month.  I'm sure it's not the version that Cap is referencing, but it will give you fund and stock snapshots.  You can spend a little or a lot for research...that's a personal preference thing.
 
Other areas FYI...
 
Assistant - Mine costs me about $3,500/month with bonus.  Tack on 3% pension, 7.65% SS/MC taxes, and state unemployment.  The rest of the benefits package is up to you.  If you are in a metro area, you may need to spend $5,500/month, but in the rural midwest, that's damned good money for an assistant...even licensed.
 
E&O - $1,000/month...I hope not!  Mine is about two grand a year, so unless you are arbitration city, that looks pretty high to me.
 
Payout percentage - varies quite a bit depending on the makeup of your book, but mine runs 86-87% after ticket charges.
 
Overall, not a bad first effort.  You've put some time into this and as you get closer to making it a reallity, you'll have time to fine-tune your numbers.  Also, as Cali and others before have said, you may want to start in an executive office suite.  I will pass my fourth anniversary as an indy before I get into my own office (have been renting space from an accounting service), and it is my opinion that you may want to avoid the headache of dealing with purchase and renovation of space when you should be focusing on transferring your book.
May 18, 2009 2:26 pm

Question for all....if you are at an indy B/D, and are the broker/agent of record on a 401K plan, are there any ticket charges or other costs associated with that? 

May 18, 2009 3:13 pm

Nope...no ticket charges for direct business and all my retirement plan business (except for solo(k)s) is direct.  Solo(k)s at LPL...yep...ticket charges.

May 18, 2009 3:36 pm

Not that I know off.  I have group annuities where I became the broker of record and it will take a little while for it to show up but the transations that occur in participant accounts go through the vendor not you, thus you don't have ticket charges.

May 18, 2009 4:19 pm

As I suspected.  I was just curious. Thanks.


It seems that msot plans are paying between 25 and 50 bips to broker.  Obviously, huge plans would generally pay less, and little plans may be C-shares or something similar, but is 25 to 50 what most plans generally are paying?  I have a few Hanc*** plans and a Hartford plan, and they have all kinds of options for payout.  That's the nice thing about GA plans, they have hefty payout options and lots of bells and whistles.  However, on the smaller, fund based plans, I find the payout not worth the effort unless it's a bunch of doctors or attorneys or something.


 
I think I'll post this topic under another thread.
May 18, 2009 6:19 pm

Yeah, I was looking more at ERISA work.  I have some SIMPLE's and SEP's, but generally can't stand those.

May 18, 2009 6:31 pm
B24:

As I suspected. I was just curious. Thanks.



It seems that msot plans are paying between 25 and 50 bips to broker. Obviously, huge plans would generally pay less, and little plans may be C-shares or something similar, but is 25 to 50 what most plans generally are paying? I have a few Hanc*** plans and a Hartford plan, and they have all kinds of options for payout. That's the nice thing about GA plans, they have hefty payout options and lots of bells and whistles. However, on the smaller, fund based plans, I find the payout not worth the effort unless it's a bunch of doctors or attorneys or something.



I think I'll post this topic under another thread.





Nothing like jacking employees who don't have a choice..

Hanc*** and Hartford have stupid high expense ratios once you add in your comp..

May 18, 2009 8:00 pm

I actually don't do that. Most are 25 bips, some are 35, and one is 50. The one that's 50 includes TPA. Not sure 25 Bips is considered "jacking employees".

Also, I live in an insurance-heavy state, so nearly every plan I take over or bid on is already insurance based. And sometimes it's not worth saving a few basis points in MFD fees by changing the entire plan. I have ac tually negotiated 3 times with Hanc*** to lower the expenses by lowering my comp on existing plans that I took over.

Yes, the annuity wrapper adds a layer of fees - usually about 15 bips - to the expense ratio (and to this day, I am not sure why there are group annuity 401K's - I'm not sure what value it adds, other than nice websites and tons of fund choices). But trying to change a plan for a busy medical practice or a manufacturer that can't even figure out payroll is often very tough. So it is most often better to try and work the providor in place and improve the plan and the service.

I think most would agree, you can provide much more value by providing service and education to participants, getting them to invest properly (or at minimum logically), more than saving them 15 Bips.