A realistic benchmark?

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Nov 26, 2008 10:42 pm

Would it be wrong to assume that every $1 Million in AUM would equate to around $10 grand added to my annual income? I've been under the impression that I'll be receiving  ~1% of what I have in AUM. Is this a "ballpark" estimate or am I way off and not considering a multitude of other variables? I begin with EDJ early January and am just looking for some kind of benchmark or milestones to at least somewhat gauge how I'll fair in regard to compensation. <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Nov 26, 2008 10:57 pm
bastermind80:

Would it be wrong to assume that every $1 Million in AUM would equate to around $10 grand added to my annual income? I've been under the impression that I'll be receiving  ~1% of what I have in AUM. Is this a "ballpark" estimate or am I way off and not considering a multitude of other variables? I begin with EDJ early January and am just looking for some kind of benchmark or milestones to at least somewhat gauge how I'll fair in regard to compensation.


 I think 1% on AUM per year is a reasonable assumption over time. That ratio is known (to me, at least) as "velocity".  Unfortunately, you only have claim to around 40% (if you're lucky) of that 1% per year. So, to be blunt, expecting to have your "annual income increase by $10k for every $1 mil AUM" per year is over-estimating by something like 60% (being generous).

Nov 26, 2008 11:11 pm

Thanks for pointing that out. So what would be considered a feasible amount of AUM for a new FA that busts their tail for their first 18 months of selling? 10, 20, $30Million+ in AUM? How about in 3-5 years?<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Nov 26, 2008 11:24 pm
bastermind80:

Thanks for pointing that out. So what would be considered a feasible amount of AUM for a new FA that busts their tail for their first 18 months of selling? 10, 20, $30Million+ in AUM? How about in 3-5 years?


Don't know if anyone here (especially me) can answer that better than your EDJ manager and yourself. If you gather anything close to $30 mil in your first 18 mo. (no matter what your business model, but especially if you do fee-based business) you will be a stud who can write his own ticket. Starting from scratch in this business is very challenging and everyone who attempts it has that, "Succeed, Big Time, buy any means neccessary" attitude. The one rule-of-thumb that I still believe in is, if you're not making more than $100k by year 5, then something is wrong......probably your career decision. Hope this helps. Seriously.

Nov 26, 2008 11:31 pm

That "buy (any means...)" v. "by (any means...)" mis-spelling above was probably more subliminal than I'd like to admit. At the end of every day, it is a sales position whose success or failure will be judged upon your ability to get prospects to "Buy" that which you believe is worth selling to them.

Nov 26, 2008 11:32 pm

For some perspective, when I was in interviewing with one of the remaining wirehouses I was told that by month 18 (hire date to the 18th month) it was expected I have $9mm aum. So, if you can pull in $30mm by month 18, then well done. 

Nov 26, 2008 11:43 pm

 I do appreciate you leveling with me. I'm definitely prepared for this job to be an all-out sales position in which I have experience. I worked as a telemarketer for MCI WorldCom up until the tailspin when we all lost our jobs. I was good at "creating the need" so to speak and pulled in 150-200% of goal playing the numbers game and cashing in on my gift of the blarney. The certificates of success during my MCI days helped me land this job with a little help from my MBA and military past as well. I know EDJ is F2F sales but I'm emotionally prepared and very adaptable.

Nov 26, 2008 11:52 pm

Between successful, cold, phone sales at MCI (or anywhere, for that matter), your MBA and (most impressively to me) your military history, my $.02 is that you're positioned more strongly than the vast, vast majority of other new-comers to the business. Keep your goals high, as you've obviously proven that you can meet goals against formidable opposition.

Nov 27, 2008 12:10 am

I do appreciate the words of encouragement. I understand that like almost every other profession it takes time and persistence to become successful and the key is to not throw in the towel when things are tough. I was once told that our biggest victories in life sometimes come after our biggest disasters and I believe this to be true. It also helps that I'm only 28, single with no kids, hardly any debt, and have a place to stay rent free until I'm ready.<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Nov 28, 2008 8:37 pm

I appreciate the feedback. I’m really new to this gig and was a little unsure as to exactly how we’re primarily compensated as far as AUM. Of course I’m aware of the commissions and bonuses associated with any sales position but were a bit fuzzy when I was being told that EDJ has a 36-40% payout. So with what you just told me having a hypothetical 20mm in AUM @ 1% I would receive around 78000 annually from the production based off of a 36% payout plus additional bonuses and trips thrown in the total compensation package. Hopefully I understand correctly.

Nov 28, 2008 10:45 pm

Although the information you have received is relatively "accurate" it is also misleading.  When starting out you will need current income as opposed to future fee income, primarily so you can eat.  <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />


Let me give you an example, client has $6,000 to put into a Roth IRA.  If that goes into a fee account at 1%, your income next month (I’m assuming EDJ fee platform pays fees monthly as they do with trails, etc.) goes up by $2 ($5*40%).  If that same $6,000 goes into C shares of a mutual fund, your immediate monthly income increases by $24 ($6k*1% sales concession 40%), you receive no other compensation for a year & then your monthly income goes up by $2(1% annual trail40%).  Or you put that $6k into a front-end mutual fund A shares with a sales charge of  5.75% and a sales concession of 5% and your immediate month’s income goes up by $120 ($6k*5%40%) and you will receive a much smaller trail (.25%40% annually).


At Jones, and most other places, as a new rep, you aren’t going to defer current income and build a fee-based book, you need current revenue to pay your bills and at some firms in order to keep your job.  Eventually you either convert clients to fee-based or as your income and revenue stabilize, you then begin to use a fee model for some of your new clients, as you are less desperate for current income. 


In addition to this, there will be investments you will make/take for new people that would not be appropriate in a fee account, such as a CD.  So that $20k CD is part of your AUM, but you won’t receive any recurring income from it (and very little income when you sell it to them) – but at least you know where that money is and when it matures! 


Hope this helps.

Nov 28, 2008 11:09 pm

Terrific! I’m soaking up all this information like a sponge and appreciate you and everyone else that are shedding some light on this subject. Just coming into this business I’ve felt as if the compensation method is a little obscure but I’m starting to get a handle on things through posts such as yours. I suppose the fact that there are so many variables thrown into the compensation mix makes explaining the process a little difficult; especially to a brand new FA that’s still studying for their series 7 & 66. Again, thanks for taking the time to explain things.

Nov 28, 2008 11:30 pm

bastermind,
 The takeaway should be that this is a challenging business, not a hopeless pursuit. IMHO, Oldlady illustrated to you, bluntly, why fee-based business may NOT make the most sense, neither for you nor your clients going forward. That is NOT the only pricing structure available to you as an advisor-to-be, nor to your clients-to-be (although it will be presented to you as such during training). If you've soldiered and cold-called successfully for a pittance, you can prosper in this business with a better chance of success than most.

Dec 1, 2008 6:05 pm

Kid, at this point, concentrate on getting your first sale. Go on from there to your second, etc. Don't worry about your AUM 18 months from your can-sell date, concentrate on the NEXT sale!



Just my two cents worth. Good luck to you!