Moving need advice on due diligence?

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Feb 20, 2010 2:09 pm

My partner and I have been at a wire house for 14 years.  AUM $220M with trailing revenues of $2.0M.  Our business is 85% fees.  We are going to move.  We have conducted preliminary due diligence at the independent contractor option at Raymond James, the Hybrid RIA option at LPL, and moving to our own RIA at Schwab and Fidelity.  Can anyone provide advice or experience in assisting us with this decision?

Feb 20, 2010 6:22 pm

I moved to RJ from a wire (where i was a producing manager) last year. Very positive experience. Move was easy, they bent over backwards to help me any way they could, and a little less than a year later i consider it a complete success. If you want more detail/answers to specific questions, feel free to PM me. Hurry though, they are changing the software on the board next week, and all the PM's will dissappear.

I have no experience with LPL (didnt meet with them) or the hybrid model at all. I;m sure Indyone and others can speak to their experience with LPL.
Feb 20, 2010 8:29 pm

Best to sit down with a slide rule and calculate your payout on managed accounts. They are definitely a quality firm, but the admin fees seemed high last year when I looked very hard at them. Good marketing capabilities and decent people. Seemed like they have a good grasp of the business. If you are used to high net worth stuff from a major, they may be a little behind but make up for it with well run and tenured dept. heads. Again, the transition money as well as economics of managed account administrative fees / manager fees was a drawback to this firm. Be sure to carefully match up exactly what managers you have and whether or not the new firm has the same SAM manager or even A or I class on mutual funds. This can be tricky and you really have to look carefully. Also, some managers may have higher minimums on different platforms. Make the new firm specifically prepare a spreadsheet showing exact manager name/style and admin fees (all in) so you can see your net.



Don't think you'll go wrong leaving a wire - should be well recieved by clients as the sentiment is way in your favor. Now is the time to do this before the strive to rebuild their images. It will still be good in the future, just a little easier now if you have vultures in your office waiting for you to leave.



I looked at every firm that offers independent channel as well as RIA. The larger ones seemed to have better technology and support, yet at a slight cost disadvantage. Watch out for the cross selling at the discount houses. Fidelity admin fees were high, but they have some great technology. A large name like this will reassure clients, but again, you have the wind at your back with the wires scrambling to regroup.



Feb 20, 2010 8:51 pm

Look at FiNet.



https://www.wfafinet.com/home.htm

Feb 21, 2010 10:03 pm

Whatever you do don't go to finet. These are the same incompetent crooks that's been running wach for years.

Feb 21, 2010 11:11 pm
Midwest Advisor:




AUM $220M with trailing revenues of $2.0M. Our business is 85% fees.









You did not mention another wire.   I guess you have had it.



If not, those numbers with that fee based % would get you a huge check.

Highest % ever. You're exactly what they want.



are u running dollars or using managers?

Feb 22, 2010 8:14 am

The wires are out...We manage the money ourselves.

Feb 22, 2010 8:31 am
Midwest Advisor:

My partner and I have been at a wire house for 14 years.  AUM $220M with trailing revenues of $2.0M.  Our business is 85% fees.  We are going to move.  We have conducted preliminary due diligence at the independent contractor option at Raymond James, the Hybrid RIA option at LPL, and moving to our own RIA at Schwab and Fidelity.  Can anyone provide advice or experience in assisting us with this decision?



If you are 85% fees, you should start your own RIA at Fidelity.  You are exactly what they are looking for.  Or give Fred a call at TradePMR.  With that kind of jack, I'm sure he could hook you up with all kinds of discounts, and their platform is head and shoulders above AdvisorChannel and probably even WealthCentral.

I wouldn't go to RJ or LPL, but that's just my preference.  I can't imagine paying them to do something that you can take care of yourself, or pay someone a lot less to help with.

And really, unless you are doing a lot of trading, why keep the 7 and have to deal with FINRA? 

Feb 22, 2010 8:50 am
With the business you describe LPL and RJ are not the best choices, additionally, we believe both of these firms will undergo substantial structural changes in the next couple of years  (as will the industry in general).  With $200M in assetts, you may want to consider becoming a Federal RIA, and find an independent BD who will help you with the rest.  However be sure that your client assetts are custodied at an NYSE member firm (very important).
Feb 22, 2010 9:11 am

Go the RIA route. I was a discretionary money manager at a wirehouse, the majority of my book fee base. I was going to make the leap to RIA and the b/ds scared me to death about the compliance issues of being an RIA. How hard it would be to navigate compliance without a b/d behind me.

I went with the b/d and wasted 2 years battling with compliance. The most common response I got from compliance was, "if you want to do this, why are you not set up as an RIA?"

Go the RIA route, compliance is very easy, no ridiculous FINRA rules to deal with

Feb 22, 2010 9:39 am
Most of what CAL123 says is true.  However FINRA or some other agency yet to be created will step into the RIA picture, it has to happen, the SEC and the states simply can not handle the work load.  Additionally, if you completely give up assocation wtih a BD, you give up substantial product flexability that you may need or want someday.  Find an independent BD that will allow you to attach your own (nonafilliated) RIA.
Feb 22, 2010 9:57 am
icebear48:

 Find an independent BD that will allow you to attach your own (nonafilliated) RIA.



One of the issues I had was even with a separate RIA, the b/ds said they had the right to supervise all outside activities. So even though the RIA was separate, they could still get their claws into it (and take 10% of the revenue for over site). I spoke to a headhunter about this and he said having a stand alone RIA where the b/d has no oversight just doesn't exist anymore.

I would be interested in hearing if anyone has found a b/d that will leave the RIA completely alone.


Feb 22, 2010 10:04 am
Midwest Advisor:

The wires are out

 
winds of change now a hurricane i guess.
 
I should know..but do you get anything to move? 
 
Feb 22, 2010 10:25 am

 Yes CALI123, we have an RIA who clears it's trades with us (AUM about 190M) we do not invade RIA revenue, but make our money from clearing and the non RIA brokerage that they do.  What you say is true, we as a BD are responsible for oversight of that RIA, so is is a situation we would not want with everyone (especially the inexperienced), but in this case we are comfortable.

Feb 22, 2010 10:33 am
icebear48:

Most of what CAL123 says is true.  However FINRA or some other agency yet to be created will step into the RIA picture, it has to happen, the SEC and the states simply can not handle the work load.  Additionally, if you completely give up assocation wtih a BD, you give up substantial product flexability that you may need or want someday.  Find an independent BD that will allow you to attach your own (nonafilliated) RIA.



Icebear - Maybe.  But even FINRA can't handle what they have. 

I think the best bet is to become an RIA and deal with it as it comes.  I don't know that I've given up any product flexibility.  I have access to pretty much anything.  And if I don't, I can get access to it.

Feb 22, 2010 10:33 am
Shania Twain:
Midwest Advisor:

The wires are out

 
winds of change now a hurricane i guess.
 
I should know..but do you get anything to move? 
 





You get the satisfaction of running your own company and having nobody but your clients to answer to.



I'm with Schwab.  Could not be happier. 

Feb 22, 2010 10:41 am
Moraen:

[quote=icebear48]



I think the best bet is to become an RIA and deal with it as it comes.  I don't know that I've given up any product flexibility.  I have access to pretty much anything.  And if I don't, I can get access to it.



The FINRA vs SEC overseeing RIAs argument reminds me alot of the independent research arguments that happened after the tech crash. Alot of big idea changes, but in the end not much changed - AND it took years for that change to occur. Even if FINRA gets its paws on the RIAs, I can't image it won't go down without a big battle and take years to get pushed through.

Plus, with your level of assets, you may not even want the product flexibility. You may just want to become a money manager. Your revenue will almost double - your biggest challenge is managing the overhead.




Feb 22, 2010 8:41 pm
icebear48:

With the business you describe LPL and RJ are not the best choices, additionally, we believe both of these firms will undergo substantial structural changes in the next couple of years  (as will the industry in general).  With $200M in assetts, you may want to consider becoming a Federal RIA, and find an independent BD who will help you with the rest.  However be sure that your client assetts are custodied at an NYSE member firm (very important).



Can you expound on your statement re LPL and RJ / Structural Changes? I imagine regarding LPL you are referring to eventual IPO? What do you see for RJ, and if you can share, on what basis?
Who is the "we" you refer to?

Feb 22, 2010 9:53 pm

I love all the BS oversight required in this industry....meanwhile, Bernie M gets away with $50B! Shameful industry. Seriously.

Feb 22, 2010 10:04 pm

Uh, corporate fraud anybody?  Those CFO's who signed off on crap 10-k's were... you guessed it... CPAs!