In Production?

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Nov 5, 2009 2:05 am

Ok, don't  flame me, just getting going here and learning the lingo you guys use...

I just read a post where a guy said he managed 130M in assets and did 750,000 in production...

I've seen that term "In production" thrown around a lot...  When someone says  "a $300k producer" or "750,000 in production" - what exactly does that mean?

$750,000 in new assets, commissions, fees, etc, etc...?

Thanks....

Nov 5, 2009 7:09 am

PUH-leez tell me you were drunk when you wrote that.

Nov 5, 2009 7:30 am

it is the gross income for the advisor. All the money they bring in in fees, managed accounts, fund trails...everything!

 
Out of that total, they need to take out for office expenses, etc. This can be anywhere between 50%-90%. 50 is Edward Jones...90 is someone working out of their home with no assistant. 
 
That 750k producer is probably "taking home" about 75% of that production...although, before it makes it to his bank account, it is taxed to sh*t by the federal government just like any other income....still a good income, though.  
 
Although, someone with $130MM under management should be bringing in 0.8% in production...so that guy is leaving an extra $300k on the table by not running his business efficiently.  
Nov 5, 2009 9:22 am
iceco1d:

That was an awful explaination, Billy.

 
"Production" is simply the amount of revenue you generate to your FIRM.  Whether you are an RIA, at a wire, indy b/d, whatever...your gross production, is the total amount of fees & commissions that your clients PAID. 
 
If you sell an A-share mutual fund, $1,000 worth, with a 5% re-allowable sales charge, your gross production on that sale is $50 (5% x $1,000). 
 
If you have a $100,000 account, in a fee-based platform, and you charge the client 1% a year, that will generate $1,000 ($100K x 1%) in gross production for the FIRM.
 
Now, your PAYOUT, is what determines your paycheck.  You multiply your PAYOUT by your gross PRODUCTION to see what your gross paycheck will be.
 
In the fee-based example I typed, suppose your payout is 40%.  So your $100,000 account is being charged 1% per year, and generating $1,000 a year in gross production.  Your payout is 40%, so will get 40% x $1,000, or $400 in your PAYCHECK, throughout the year, because of that account.
 
Now, on that $400 in your paycheck, you still have to pay taxes, save for retirement, take clients out to lunch, etc.  That's just your gross pay number.
 
Hope that helps.
 
FWIW, most people "ball park" your gross production by 1% times your AUM.  So a $50MM book would be expected to generate $500K in production...although, for most established brokers, it's probably closer to .8%, as Billy said.  So maybe a $50MM book would be expected to generate $400K in gross production (.8% x $50 million).  Now, if your payout was 40% in this example, your GROSS paycheck would be $400,000 x 40%, or $160,000. 
 
Hope that helps.
 
Perfect explanation. You did forget jaunts to the gentleman's club from the paycheck number though. That needs to be added to the budget.
Nov 5, 2009 9:34 am

Thanks Ice - very nice explanation.  I thought something along those lines...

Do you assume the 1% of .8% on a certain size book just because you'll be moving some of that around and annual fees?

iceco1d:

That was an awful explaination, Billy.

 
"Production" is simply the amount of revenue you generate to your FIRM.  Whether you are an RIA, at a wire, indy b/d, whatever...your gross production, is the total amount of fees & commissions that your clients PAID. 
 
If you sell an A-share mutual fund, $1,000 worth, with a 5% re-allowable sales charge, your gross production on that sale is $50 (5% x $1,000). 
 
If you have a $100,000 account, in a fee-based platform, and you charge the client 1% a year, that will generate $1,000 ($100K x 1%) in gross production for the FIRM.
 
Now, your PAYOUT, is what determines your paycheck.  You multiply your PAYOUT by your gross PRODUCTION to see what your gross paycheck will be.
 
In the fee-based example I typed, suppose your payout is 40%.  So your $100,000 account is being charged 1% per year, and generating $1,000 a year in gross production.  Your payout is 40%, so will get 40% x $1,000, or $400 in your PAYCHECK, throughout the year, because of that account.
 
Now, on that $400 in your paycheck, you still have to pay taxes, save for retirement, take clients out to lunch, etc.  That's just your gross pay number.
 
Hope that helps.
 
FWIW, most people "ball park" your gross production by 1% times your AUM.  So a $50MM book would be expected to generate $500K in production...although, for most established brokers, it's probably closer to .8%, as Billy said.  So maybe a $50MM book would be expected to generate $400K in gross production (.8% x $50 million).  Now, if your payout was 40% in this example, your GROSS paycheck would be $400,000 x 40%, or $160,000. 
 
Hope that helps.
Nov 5, 2009 11:07 am
Billy Mays:

it is the gross income for the advisor. All the money they bring in in fees, managed accounts, fund trails...everything!

 
Out of that total, they need to take out for office expenses, etc. This can be anywhere between 50%-90%. 50 is Edward Jones...90 is someone working out of their home with no assistant. 
 
That 750k producer is probably "taking home" about 75% of that production...although, before it makes it to his bank account, it is taxed to sh*t by the federal government just like any other income....still a good income, though.  
 
Although, someone with $130MM under management should be bringing in 0.8% in production...so that guy is leaving an extra $300k on the table by not running his business efficiently.  
 
EDJ is more like 39% payout, not 50
Nov 5, 2009 11:13 am

Simply put production is what you guys used to do when you were able to churn your clients assets when the economy was booming and people were not buried. lack of production is what you will do now and in the future. Understand

Nov 5, 2009 11:16 am

gettingstarted - pretty soon what these guys do will be illegal. You don't want to be in their profession. Find a more honorable career.

Nov 5, 2009 11:18 am

welcome back

Nov 5, 2009 12:08 pm

i'm not sure being "back" is a good thing, but some people have to stand up for what's right.  

Nov 6, 2009 8:21 pm
iceco1d:

That was an awful explaination, Billy.

 
Sorry, the coke is really messing up my head.