Considering a move from EdJ to SWS - question on fees

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Jun 6, 2011 9:15 pm

I am considering a move from EdJ to independent. Was contacted by SWS in Dallas and they are interested in bringing me over. I am a small office- started from scratch a few years ago, so I don't expect much in terms of help from SWS except the opportunity to finally kick off the 40% payout, taxable trips, nanny-state field supervision, and limited product line.

My question, now that I am seriously looking at going indy, is why are the monthly expenses of these broker/dealers a best-kept secret? I have searched the net for three hours tonight looking for any rough estimate on their platform monthly costs, or any other B/D's for that matter, to very little success.

It can't possibly be as bad as Jones, where I get the priviledge of a $1000 a month "data fee", line item costs for all other expenses, and a $5,750 monthly added buffer for "Home Office Support", before the branch is considered profitable.

Can anyone shed light on what I should be expecting to pay each month, regardless of production? It would make budgeting a new P&L a hell of a lot simpler than using Jones' padded model.

Thanks.

Jun 6, 2011 9:34 pm

I have just chosen Raymond James to go with, leaving Jones very soon.  I would contact SWS recruiter for more info.

Something to think about, some of the bigger firms like LPL, etc are offering upfront money that will help you start up your business.  I would make sure SWS can match or compete there, as well as payouts, products etc.

Jun 6, 2011 9:47 pm

Thanks - he says they go over full payout and costs once I fly to Dallas for the grand tour. That sets off some BS alarms for me.

And speaking of Jones defections, I've got this strange feeling from talking to guys around my region that the company is about to lose quite a few. Competition for us right now is fierce, and guys who I thought bled the Kool-Aid are talking seriously about jumping ship. Anyone else getting that sense?

Jun 6, 2011 10:12 pm

There is not a huge amount of difference - small producers at most indy shops are gonna pay between 15 and 25 per cent off the top (depending on the OSJ structure) then all their own local expenses. With good control, maybe a65% net for the sole broker office. A lot depends on the type of business kix, get pro forma's before wasting time on a site visit.

Jun 7, 2011 12:24 pm

  Tell them you need this info before your HOV, or your not interested.  LPL recruiters will provide you a detailed proforma that outlines every last nickel of cost--customized for your specific business type/mix, ahead of time.  You are correct that EJ monthly P&L numbers are grossly overinflated versus real service provided.  LPL let's advisors choose many services ala cart--so you only pay for what you need in most cases.

 Your due diligence should not be rushed, and should include the major indies.  There are very good reasons more advisors are joining them, versus SWS, etc... Take the time to do this and you won't regret it.

Good luck!

Indyguru. 

Jun 7, 2011 1:22 pm

Thanks Indyguru.

I pushed back a little harder and now it looks like I will be getting more detail this afternoon.

Jun 8, 2011 10:02 pm

Very straight forward firm.

275 e&o, includes decent technology, set up accounts and trade immediately, 75% to 90% payout depending on production.  Ticket charges 20 on stocks and bonds.  mutual funds if in brokerage have 5 charge to 20 depending on how large.  Can hold direct.

The rest of the expenses are up to you.  Office, etc.

Jun 10, 2011 8:45 pm

Congrats on the positive move.  When I left EDJ to go Indie, my income skyrocketed with a lot less effort.  The costs and fees will depend on your B/D, but I have heard that SWS is a pretty good company. 

Quick tip: Learn all you can about alternatives and perform your own due diligence on them.  They allow you to differentiate your self from other large firms by offering non-correlated assets that perform even when the market plummets.  Right now, I am ecstatic.  The S&P plummet means I will see more new clients becaus I can invest their money in non-market risk products.

Finally, you are absolutely correct about the EDJ defections.  However, that is pretty standard for them and the industry in general.  Knocking doors or cold calling and seeing less than 6 figures for it after 1 to 2 years can be pretty demotivating, especially when you realize you are also going to have to explain to your current customers why their portfolio values just dropped 7 to 8% in less than one week and may continue to fall.

Jun 11, 2011 10:37 am

Great advice - thanks everyone! I am now looking at Woodbury as well as SWS. Interesting business model at Woodbury.

(And to all you lurking recruiters out there, PM me if you are looking to grow and have an opportunity similar to SWS.)

I agree with the 2 years DK-ing and not seeing much from it. For me, it's really just not good financial sense to stay. Don't get me wrong, they're a good firm - maybe one of the best to start in - but once you punch a few numbers, it makes no sense to leave that much money on the table for so many years, especially when the costs of doing business are very low where I'm at (office space is probably less than $1.25 sq. ft. a month). By my calculations, after the data fees, depreciation of office equipment, and that nifty $5700 buffer, a broker at Jones makes 40% all the way past $250k gross before that even begins to step up with profitability bonuses.

I'm amazed I was once wowed by div trips that get charged to the rep as taxable income, or an LP I have to work very hard for, and in the end, still have to buy anyway.

Onward and upward!

Jun 16, 2011 11:33 am

Before you make a move to SWS, send me a PM and I can give you a few other choices I would see as a much better fit for someone exiting Ed Jones.

Jul 21, 2011 5:08 pm

How did your visit go?

Aug 12, 2011 10:23 am

It went really well. I think the meeting was a good idea- I got the opportunity to sit with people from every department that was relevant to my book of business, ask the questions I wanted to ask, look at their software and fee structures in detail.  I like the fact that they are big enough to make their Indys competitive, but still small enough that you can get to know almost everyone in their back office on a first-name basis.

Jul 22, 2011 3:24 pm

borei sounds like an informed invidvidual and said that with good control of overhead an indy could see 65% net.  What if you don't have that discipline?  What if you want to cover the ticket charges (or do you pass on "$5-$20 to the client)?  What if you want to have a nice office?  What if your lease says you have to pay for the $6000 AC unit when it breaks?  What is name recognition worth in your area (in mine its pretty powerful)?  What is your additional time spent on being responsible for the additional activities worth?  My payout is in the 39% range and when you throw in the bonuses of roughly 4% and profit sharing of 4% and the div trips (yes they're taxable, but you could cash them out if you chose).  I'm somewhere around 50%.  Not that far off from 65% or maybe 60% (pure guess) for the average indy. 

And don't forget about the great health insurance!! 

Jul 22, 2011 4:09 pm

What is an extra 15% worth?

200,000 production = 30,000 additional income

300,000 production = 45,000 additional income

400,000 production = 60,000 additional income

Quite a spread.  Also, I assum your net goes up a touch as you ramp up production.

Jul 24, 2011 1:37 pm

that's assuming all your clients and aum goes with you.  and what about the non-compete?

Jul 25, 2011 3:03 pm

Jumpman - that's exactly my point, $60 grr is $5k a month pre tax.  That's what I'd expect to have to pay an office manager to take care of payroll, bills etc. that Jones or the wires/regionals do for you.  I'm not saying that $60,000 isn't a good chuck of change, but I don't want to do everything else.  I'm quite content paying (or overpaying as the case may be) for Jones to take care of everything.  It's a value proposition that I'm comfortable with -- check back with me when the bonus bracket falls to zero again, and I'll be gritting my teeth though.

Jul 25, 2011 4:04 pm

You really think you'd pay someone 5k a month to pay your bills and file your payroll taxes?  You couldn't pay your assistant an extra $500 a month to complete those acticities for you?  Or a small book keeper?  Everything can be outsourced these days. 

I'm not making the argument either way but I think you've oversold the time commitment.  I guess the real question is how much extra work would it take you to increase your production another 150,000?  That's what 60k is at 40%.

BTW: do you pay your assistant 5k a month now?

Jul 25, 2011 4:58 pm

I was going under the assumption that the advisor that could keep expenses down enough to clear 65% would be a solo shop with no assistant, using borei's example.  Obviously, all of this is oversimplified, but I'd assume you'd have to pay more than $5k for a decent assistant that could do not just payroll and bill paying, but all of the "etc" - answering the phone, 1035 paperwork, life insurance applications, mailings, supplies, and a million other things.  None of it is rocket science, it's just time consuming and I'd rather waste time reading this website or talking to my clients or better yet - hanging out with my family than dealing with the minutiea of our industry.  Again, just a value proposition.

"everything can be outsourced" is correct, but it isn't free so it has to come off this made up 15%.

I don't think the time difference is all that much from generating $120k (50% payout) from doing everything else, it's just a matter a choice.  Who's to say that I could generate $400k if I was responsible for everything?

When you figure in health insurance and FICA she costs probably very close to that.

Jul 25, 2011 5:48 pm

400,000 x .90 = 360,000.00 gross

400,000 x .65 = 260,000.00 net

I hope you could pay for an assistant, health care, misc. exps., and a NICE office with 100k per year slush money. Of course at 400k I bet there are B/Ds out there that would give you better than 90%.

Aug 10, 2011 9:55 pm

Well, what makes you think that you can make it indy when you can't make it with one of the easiest companies on the map. It's about the effort you put in, so say you have a 4 million dollar client base after being with the firm for 3 yrs in a little town where no one has money anyway and you are on goals and people don't want your coffee. The best decision is to go independent to get away from having to make numbers and never having to leave your house.