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Any update on that LP offering?

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Feb 12, 2006 10:42 pm

You ever wonder why firms pay things like LP and stock options to advisors or in Jones' case IRs (that was for you player)?  It tends to happen when you become more valuable to them than they are to you.  The firm begins to realize that hey, we better make sure we do some things to keep this guy around as he brings us an awful lot of money.  I always view this in terms of leverage - am I leveraging my b/d or my b/d leveraging me?  For $.60 on the dollar I earn, I get what?  Compared to $.10 on the dollar I get what?  All things being equal I get the same at a minimum, but I own my business, control my exit strategy, have the ability to adjust to the needs of my client v forcing my clients to fit my model, have tremendous tax benefits as a business owner and have complete control to manage it. 
Better yet, I don't have to stay on the treadmill of adding more clients, more new money to avoid starting from zero every month. 

Do I want to be an employee or an owner????? hmmmmm?


Just curious G1, that 53% net is that after bonus to your BOA, paying 1/2 your postage, phone, marketing expenses, etc?  I believe you said it was but just wanted to make sure.

Feb 12, 2006 11:11 pm

Ex, Indy, and Csm,

What is your overhead in terms of rent and assistant pay per mo?  What is your net/net percentage after that? 

Feb 12, 2006 11:20 pm

My OH is about $3,800, and my net-net is in the mid to upper 60's.  Rent is $400/month for an office in an accounting firm and my part of the shared assistant averages about $1,500/month.

Feb 12, 2006 11:35 pm

Indy, 

That would be low Im guessing.  From my research Im finding its hard to net/net 60% unless you have a situation like yours.  I'd like someone to show me a 60% or higher net/net when they are paying an experienced asst about $3200/mo and rent $1600/mo.  I would think thats about avg for a 10 year +.

Anyone ?

Feb 13, 2006 12:01 am

Jonzed,

My full time admin costs me 2900/mo(total cost with payroll taxes etc. processed by my cpa) with me paying 100% of health ins for her. 1000 for rent, 200 phone and internet ,50 for postage and FEDEX, 85 for contact manager(Salesforce.com @ 995/year= roughly 85/mo.) That gets me to about 4200 and the remainder is misc stuff like toner, paper, coffee, efax...

Feb 13, 2006 12:02 am

I am netting in the range of 68% as well.  A lot of this JZ depends on your business model and the way you manage your practice which was kind of my point.  Under your model, and I don't mean this to sound degrading, you pay your b/d $.60 for every dollar you earn I pay $.10 for every dollar.  In terms of what each of us gets from our b/d is arguably the same for the most part.  However, you are giving them 60% for them basically to manage your margins and to put that money in areas that may or may not make a difference to you locally.  I take the 90% and manage my own margins and spend it in areas that do affect my business locally.  So even if I net 53% or 40% where I lose the other % on expenses, I am determining where it goes and how to best allocate that.  This is the most significant difference between indy and employee.  Who do you want to manage your margins - you or your b/d?  If you want the b/d to do it stay an employee but if you believe you can do it better; indy makes more sense.

Feb 13, 2006 12:22 am

Jonzed, my overhead IS low, but that is by design in my independent start-up.  As I grow assets, my overhead will undoubtably grow also.  Let's say we use your numbers and tack on other overhead to bring the totals to say, $10,000/month, and let's say your production has grown to $50,000/month.  If we knock off 15% for your indy B/D, that brings you down to $42,500.  after $10,000 overhead, you are netting $32,500, or 65%.  If you double that production and add another $3,200 assistant, your net goes to 71.8%.  When I was doing due diligence, I spoke with a guy who was netting just under 80%.

To be honest, I don't see my overhead getting to $10,000/month, even if I reach $50,000/month.  If anything, I could see some of it dropping.  When I get to a production level that satisfies me, I'll most likely cut my advertising and marketing efforts.  Why do a seminar when you have all the clients you can adequately service?  Whatever the net number is, I'm confident that it will be far higher than it was at my former employer, but that wasn't even my primary reason for leaving.  Being in control of my business and not having to deal with corporate politics was my primary motivator.  I saw a survey when I was doing my due diligence that said only 26% or independent reps went independent primarily for the higher payout.

Now, I'll shut up and let the other guys answer...

Feb 13, 2006 12:23 am

Csm,

I understand what you're saying, but 2 things I can't change are my asst pay lower (unless I fire her and get a new one) and rent.  With that in mind, the most optimistic payout I can get to net/net is 56%. That is with RJ or LPL.  Believe me, I've turned this thing upside down shaken it up and then did it again.  The real question for a vet IR is: Do you think its worth the months of aggrevation going through this for about 12% higher payout.  I'm still trying to decide myself. 

The reason I am leaning to a yes is because: 

Ownership of book, more products (tons more which means could mean making more $), 1099 vs W-2, my own retirement plan, and other things Im not thinking of right now.

How do you account for the tax bene's of being 1099 in terms of $, has anybody got that figured out yet vs W-2?

Feb 13, 2006 12:30 am

Jonezd,

January numbers: Gross: $32,519, Net: $26,033 (80%)

My expenses for the month were $5,030.  There is another broker that I share overhead with so I spend about 5k/mo each month.  January net/net came to 65%.  I, too, was at Jones and for years I didn't believe the numbers could be true.  I left 13 months ago for RJFS and the payout has actually been higher than I expected.

Feb 13, 2006 1:01 am

I think the indy firms purposely show you conservatively what they think your payout numbers will be to some extent. 

Never having done FICA or payroll before, what program or service do you all use for this?

Jz

Feb 13, 2006 1:05 am

I started with Paychex but quickly realized that it wasn’t cost efficient (having just one employee).  My CPA handles it now for about half the cost of Paychex.

Feb 13, 2006 1:53 am

I use Quickbooks for all my checkwriting, including payroll.  Your CPA can help you set it up and it’s not expensive…$200 for the program and $200 for the annual tax table subscription.

Feb 13, 2006 3:21 am

[quote=Guest1]CIB, profit was 380, don't know bonuses offhand except for the third one that pays next week, 43k. Allocations I will look tommrw.[/quote]

Here's the math I'm struggling w/ myself...and I'm not getting bonuses or LP yet...

380k profit means AFTER "overhead allocations" Jones made 380k. I'm interested in the OA number because that should be enough to take care of STL and the GPs, etc. for at least you, and maybe a few newbies that aren't yet carrying their weight.

380k-129k bonuses-19k LP=232k. So AFTER the big OA number and everything they gave back, you still leave 232k! on the table.

I've tried to figure out how this is a good deal for the IR and really haven't been able to. Logically, shouldn't they give everything back to the IR after they cover "overhead"?

When I started to figure all of this out (by myself of course) I started to feel like my wife was cheating on me...

CIB

Feb 13, 2006 6:06 am

CIB,

I have suggested before that the GP's have the IR's paying for the firms growth through things like overhead allocation, inflated communications expenses(1400/mo) etc... Your numbers above reinforce that point perfectly.

Feb 13, 2006 6:57 am

[quote=Jonzed]

Csm,

I understand what you're saying, but 2 things I can't change are my asst pay lower (unless I fire her and get a new one) and rent.  With that in mind, the most optimistic payout I can get to net/net is 56%. That is with RJ or LPL.  Believe me, I've turned this thing upside down shaken it up and then did it again.  The real question for a vet IR is: Do you think its worth the months of aggrevation going through this for about 12% higher payout.  I'm still trying to decide myself. 

The reason I am leaning to a yes is because: 

Ownership of book, more products (tons more which means could mean making more $), 1099 vs W-2, my own retirement plan, and other things Im not thinking of right now.

How do you account for the tax bene's of being 1099 in terms of $, has anybody got that figured out yet vs W-2?

[/quote]

Dude it isn't about the payout, althought it is quite nice!

It isn't even about 'owning my book' so much, as depending upon what happens in the world it might not be so easy to sell.

It is, however, about FREEDOM....from policital b.s., and corporate imperatives pushed upon my by folks who have never been on the front lines.  Freedom to move on to greener pastures if my b/d doesn't fulfill their end of the bargain.

Some day, perhaps, you'll understand.  The water's great.  Dive in!

Feb 13, 2006 12:45 pm

JDaB… couldn’t agree more.  Like I said, all things being equal I will take 40% or 53% payout and be totally free v 53% payout and being captive or have a model forced upon me.  In the end, that is what it’s all about in my mind.

Feb 13, 2006 4:52 pm

CIB, here is the math. (numbers changed slightly to protect from the sleuths online)

gross 850,000

net 338,000

Bonus 129,000

P/S 9950

p/s excess 6160

483110/850000=56.8%

yes, subtract medical/out of pocket etc but I am still where I said I was. I did not include LP on which I have very little out of pocket expense on. LP for 2005 was over $40,000

 Oh yeah, I can not sell my book. Look around, neither can most of you.

I am done.

Feb 13, 2006 6:05 pm

Guest,

Without your bonus, your payout is about 42%.  You have little control over the firms overall profitability so how can you compare your 56.8 to an independant 60%+ net.  If you average in the zero bonus years of the early 2000's how does your payout compare?  How did the GP's pay their bills when the firm was supposedly not profitable?

Feb 13, 2006 6:32 pm

Look around neither can you?????

Guest 1 you got to stop believing everything they tell you from St. Louis.  On average there are 3 buyers for every seller.  One of the advisors I share space with has purchased 2 books w/i the last 6 years.  Another advisor I know a few miles away has done the same - it's more than doable.

Feb 13, 2006 7:15 pm

Sonny,

You have a healthy skepticism that will serve you well regardless of your career direction (and political ideology).  That goodnight will probably materialize yet, but even when it does, do your thing and continue to refrain from the Kool-Aid.  I'd hate to see you turn into a BF or BPD clone...tjc is a much better example to follow.

indy