SAM II - How Billed

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Apr 2, 2008 12:52 pm

Is this correct?  For Sam II accounts at LPL, clients are billed for the quarter  yet the reps only get 1/3 of that because LPL smooths out those fees over three months?? So they keep my money for up to three months before paying me?!   Is that right?  Am I missing something here?  Isn't that rather stupic and screwed up?  Tell me I am just missunderstanding something.  Doesnt this bother anyone?

Apr 2, 2008 1:18 pm

It doesn't bother me because I knew it going in.  That's just another way they are profitable while paying out 90%.  It's no different than SAM...both are billed a quarter in advance and pay the rep in three equal installments.  The bottom line is, when your main revenue margin is relatively thin, you're going to be creative about ways to supplement it. You're mad about it because you discovered it after the fact, just as I was ticked about the $5 confirm fee.  Surprises after you've come on board are never any fun.

Apr 2, 2008 1:22 pm

Yep I suppose you're right.  

Apr 2, 2008 4:45 pm

This is pretty much the industry norm as far as I've seen. ML, UBS, WAC all pay advisors monthly on advisory business eventhough they charge the fee from client accounts quaterly so it's not just an LPL thing. Doesn't bother me.

Apr 2, 2008 7:28 pm

Ditto what IndyWanaB said....in addition, Wachovia is starting the smoothing process next month for Legacy AGE folks.

Apr 2, 2008 9:00 pm
Apr 3, 2008 6:32 am
iceco1d:

I would think many people would find even monthly payments as a benefit.  Don't some B/Ds pay 12b-1s out on a monthly basis?









Can't really argue about them "holding your money" - they are billing the client a quarter in advance anyway...they are holding their money.  


I agree that many FAs may actually like even monthly payments rather than quarterly ones, simply because it helps smooth out cash flow a bit.  But I disagree that it is a benefit to the advisor, and I certainly disagree that the B/D is simply holding "their" money.

The (say approximately) 40% portion of the fee is earned by and due to the FA.  I can't fathom how only paying 1/3 of the amount out each month benefits the FA as opposed to paying out 100% at the beginning of the quarter.  It would make sense if the client paid monthly, but if the client continues to pay quarterly in advance, withholding a portion of fees paid only helps the B/D by utilizing the float, not the FA. 

Using that same logic, what next?  Paying out  upfront  commissions earned and paid on annuities/A shares/whatever over a year rather than when purchased? 

Who needs favors like that? 

Apr 3, 2008 8:04 am
Apr 3, 2008 8:57 am

I don't think the fact that any B/D charges the quarterly fee prospectively creates any ethical dilemma to the IAR, any more than it creates an ethical dilemma to the RIA of the B/D to do so.  In both cases the advisory agreement spells out that if the client removes the assets from the program generating the fee prior to the end of the quarter they will be entitled to a pro-rata refund of the unearned portion.  Any such refund, of course, will result in a charge back to the IAR.  I'm not sure where the ethical dilemma comes in there.  After all, a significant portion (perhaps majority? I'm not certain) of independent RIAs asses their fees quarterly in advance as well, even with the whole fiduciary standard thing.

In any event, Joe, my comments are not directed to LPL or any B/D in particular.  I know it's becoming standard practice to handle it this way, and it's not a huge deal one way or another.  As you say, it's really just a timing/opportunity cost thing.  Obviously many FAs actually prefer it as it helps with planning and smooths out the cash flow. 

I just take exception with the B/D trying to position this as a favor to the FA, when it isn't really.  Ask some of your old fee-based buddies at the firm formerly known as AGE who just had this foisted on them for the first time this quarter.

Apr 3, 2008 6:49 pm

Smooth out cash flow?  What the heck are you talking about.  Call a spade a spade.  It's a bummer you have to wait to get your money but that's just how it is.  Now I'll move on.  But it sure as hell isnt something I like.  If that's how you feel send your checks to me and I will smooth them out over the course of 12 months to make your cash flow even more even.    

May 15, 2008 4:44 pm

It is just how it works and yes LPL makes money on the float, so be it.  If you move a client out of advisory or happen to lose the account you will also be pro rated a portion of the fees back, so that would be a hard surprise if you got paid in a lump sum and a client left 31 days later and you received a large charge back, so it is all fair somehow.  The SAM II is the hard part for me, with the majority of LPL funds that are higher quality being the highest ticket charges, a well diversified portfolio could quickly cost you an extra $300 in ticket charges out of the gate.  I find I have to charge much higher fees on SAM II to make sure I don't actually start taking money out of my pocket to pay for the clients account.

Jun 3, 2008 12:49 pm

I feel the same way jwcooper.  At some point, they are going to have to come out with a flat fee charged to the broker.  Lets say 50 basis points to cover all costs of trading in SAM II accounts.  I spend roughly $2000 a month in trading costs at LPL.  I am still very happy to be with LPL though because even with those trading costs I am still netting around 60% after all expenses other than taxes. 

 
The other thing they have to come out with is a trading platform.  If I didn't believe they are working on one I wouldnt be here but the sooner the better.  I need to be able to trade accross all SAM II accounts with the push of on button.  Add that to a flat 50 beeps charge per assets in SAM II and many more big wire house people will flock to the indy side.