The cost of moving

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Aug 5, 2009 9:38 pm

I am a wirehouse veteran who has worked at the same firm for 20 years and has never moved.   I like my office and I like my manager and I am reasonably happy with my firm, but I sometimes wonder if I'm missing the boat by not taking a check to go elsewhere. But the math doesn't make sense to me. Let's say I gross 500k (it's really more like 550k, but let's keep the math easy) and my payout is 40%. So my net is $200,000 a year. Let's say another wirehouse offers me an upfront check equaling 100% of my gross to sign a nine-year deal. At first glance that $500,000 looks pretty tempting. However, I've always heard that, on average, 80% of your book moves with you. So if I go through all the hassle of moving, I'll be grossing $400,000 a year and netting $160,000 (actually probably even less, because the payout would be less on 400k). My plan is to work another 20 years, so that means I'm sacrificing more than $800,000 of future pay to get an upfront check for $500,000. Of course, I could invest the $500,000 and grow it over the years, but by the same token the $100,000 in assets I leave behind would have grown over the years, giving me more and more gross down the road.   So my question is, given that I'm happy where I am, what kind of an offer would make moving worth my while? Or am I missing something, and the offers of 80% and 100% of my gross somehow make sense?

Aug 5, 2009 9:40 pm

A move to independence.

Aug 5, 2009 10:19 pm
iceco1d:

A move to indy, or perhaps even a regional like Stifel (where your payout would increase) would make sense.  Plus, you could wait and take a bigger deal once they come back in a few years (they were over 200% for awhile). 

But, if you are happy, I'd stay put. 

 
Isn't Stifel payout a grid similar to WFA?
Aug 6, 2009 10:01 am

You are giving up 15OK a year staying at your current firm, if all numbers were equal. We know they aren't and I would argue the 80% figure, mine was more like 65% of AUM. I wasn't a 20 year vet when I moved so it might very well be 80% for you.


If you grossed 400K under your scenario and net 70% which I do at LPL (gross commission-expenses before personal taxes) you would net 280K, an increase of 80K per year. If you work 20 years that is a $1.6M decision at 0% growth rate. Or if you want to get really agitated, that's a $3.5M decision (at 7% growth rate) over your lifetime. It's money you never had but would have if you went the independent route. And that's only one benefit of independence.
 
How much do you really like your manager and your firm now?
Aug 6, 2009 10:44 am

Bigcheese points make sense!  Also, have you compared exit strategies?  As an independant, you can sell your book when you retire for 200% of your trailing 12 if it is transactional and 300% if it is fee based.  It beats a gold watch or retiring from a wirehouse.

Aug 6, 2009 12:59 pm

I think the industry average for independents is about 65% payout after local expenes.  So if you move from about 40% to about 65% that is far better over time than moving to another wirehouse or staying put.  However, the best reason to move to the indy world is for more control over your life, a benefit that far out weighs the financial benefit in my experience. 

Aug 6, 2009 2:04 pm

2X for transactional? Maybe in a great economy. I thought it was closer to 85 bps-1.

 
In my opinion, the freedom, the tax advantages (which are many if you have a good accountant), the ability to sock away double what an employee can defer to retirement, the ability to have or don't have employees (and their baggage not to mention expense), an asset that builds net worth are just a few of the benefits.
 
The drawback is you have to demonstrate the ability to provide exceptional service, and provide all the tools that a client would expect from a firm with many employees.
 
Lastly, in my opinion, you have to think like a business owner.
 
Working for a wirehouse or regional is much different than working independently. From my perspective, the more seasoned reps tend to fit the indy model better. 20 years with a wirehouse, that's impressive.
Aug 6, 2009 2:07 pm

Agreed.. I have heard 75-100bps for transaction vs 200bps for fee..

Aug 6, 2009 2:43 pm

OK, Fair enough. 100 to 200% of your trailing 12 when you retire.  You are getting that big check at the end instead of having someone own you for the next 9 years!

Aug 6, 2009 2:52 pm

Let's not forget a couple of the risk factors here:

 
1. That a high % of his clients move with him
2. That he's happy at the new firm, and can get everything he had at his old firm.  What if he HATES his new BOM?
Aug 6, 2009 3:09 pm

If he is indy, he would then hate himself...

Aug 6, 2009 3:48 pm

Yup.  I was referring to a move to another wire for a check, as he had originally proposed.  I can't imagine disrupting a really good lifelong business for a 500K taxable check.  I WOULD, however, do it to go indy.

Aug 6, 2009 3:58 pm

B24 I got a bit excited when I saw the topic. I thought you were moving one step closer.

Aug 6, 2009 5:12 pm

Net $200,000 in a bad market--not bad--moving you could move only 50 to 60% of you're clients too--happen to me when I went Indy!  My old BD really went after my clients to stay!

 
It is a risk--but I am much more happy as an indy!  Gook luck either way!
Aug 6, 2009 11:55 pm
iceco1d:
trailman:
 
you can sell your book when you retire for 200% of your trailing 12 if it is transactional and 300% if it is fee based.  It beats a gold watch or retiring from a wirehouse.
 


 
Those are pretty aggressive numbers from what I've seen.



300% of the fee based production that was actually subsequently generated over the next year seems reasonable. Not cheap, but reasonable. If you've got a book full of trained seals, then I'd pay it in tranches, but I'd pay it.
Aug 7, 2009 12:03 am
Roadhard:

Net $200,000 in a bad market--not bad--moving you could move only 50 to 60% of you're clients too--happen to me when I went Indy!  My old BD really went after my clients to stay!

 
It is a risk--but I am much more happy as an indy!  Gook luck either way!

I agree, but would add one thing -
Have you ever heard of anyone going back from Indy?
Nobody who went independent that I've ever talked to regretted the decision. I would assume that any wirehouse manager would be happy to recruit me and my clients, but I would never go back. It would certainly be my "fall back" if for some reason I couldn't run my practice (a bunch of clients deserted me for some reason or something).
It's not really the fact that you don't have to deal with the ingrate morons in management, bear witness simultaneously to tremendous waste and stupid cheapness, but the fact that after you 'cover your nut' - at least as an RIA - your payout is 100%.
Aug 7, 2009 9:41 am
Ron 14:

B24 I got a bit excited when I saw the topic. I thought you were moving one step closer.

 
No, I'm not even close.  I've got a long way to go if that were to happen.  Unless I start sucking wind (not sucking Wind) and can't hit Jones goals, I wouldn't consider going indy until I had at least 20mm in annuitized biz that I knew would move with me.  I just have no need to at this point.  I am too busy worrying about finding new biz to worry about starting a new biz.  And if I did it, I don't think I would go solo.  I would prefer to have a team.  So I would have to develop that first.  So don't hold your breath (unless YOU'RE sucking Wind).
Aug 7, 2009 9:57 am

Well put and well played

Aug 7, 2009 11:15 am

That's how I roll!

Aug 7, 2009 2:11 pm

The most important thing I heard from you was that you were happy where you are.  There are so many people on these forums looking on the other side of the septic tank for greener grass.  I would stay where you are. 

 
Cutting for a wirehouse check just handcuffs you to what will probably be a neutral financial move unless you get additional perks beyond the initial check, such as your own personal sales assistant.  If  you consider the independent route get that book from Cantella at www.cantella.com