It's another version of "kiting."  The firm benefits by collecting the fees from the clients and delaying the payment of the fees to the FAs.

They make money on the float instead of you, but depending on your grid you may be better off anyway getting it monthly.

[quote=Stealth]

It's another version of "kiting."  The firm benefits by collecting the fees from the clients and delaying the payment of the fees to the FAs.

[/quote]

LPL does the same thing... it's BS... Like the other guy said, they are making money by floating the extra 2 months.

[quote=Stealth]

It's another version of "kiting."  The firm benefits by collecting the fees from the clients and delaying the payment of the fees to the FAs.

[/quote]

LPL does the same thing... it's BS... Like the other guy said, they are making money by floating the extra 2 months.

Capturing float is only one reason they did it. There is another big reason. By the way, this is not new, they started doing it about 2-3 years ago. I left there just under a year ago.

The second reason the did it, is because with the mass exodus they were seeing, of brokers, they were losing commissions paid in advance.

Before smoothing, lets say, client account is debited $1500 on January 20th, for the JAN-FEB-MARCH Period. On Feb 10th, broker gets paid and on Feb 11th, he resigns, with the payout on the entire quarters fee in his pocket.

With Smoothing, he only got one month of fee, so the firm is not out of pocket.

I don't know why LPL would do it, they are not experiencing exodus of brokers, so i guess its just the float.

It took me forever to get used to smoothing, now its taken me a while to get used to not smoothing at RJ, but its fun to have a monster month like this one.

They may be getting the float and it may be cool to have that awesome month every quarter, but if you're going to be doing this 10 - 20 years down the road, this monthly "salary" that we've set up for ourselves, will give us the steady income we dreamed of years ago before these pay structures were available.

I think smoothing makes all of the pay structures easier for every firm that uses it, and reduces their liability. 

Personally, I have no problem with smoothing, especially since my firm is willing to front me a full year's worth of fees when establishing any new fee-based account. 

First, firms are doing this primarily because of an SEC interpretation that makes prepaying wrap fees a double hit to net capital (firms have to set up a payable and also have paid out an unsecured advance to the FA).  The hit is equal to 2/3 (2 months out of 3) X 2 = 4/3 the amount of wrap fees collected.  See interp 15c3-1/24 at http://www.finra.org/web/groups/industry/@ip/@reg/@rules/documents/interpretationsfor/p037763.pdf.

Second, how much float do you really think firms are earning with zero interest rates? 

I've heard that Chase is rolling this out too. It's a real win/win. The company wins, and the CEO wins.

Former firm I was at, there did come a point where everyone became quite cynical, every change seemed to put the firm first. Endlessly playing little games...

This looks like another good reason for me to stay away from fee based, wrap biz. My clients and I seem to have no problems, just being transactional.  

When smoothing was rolled out, interest rates were a whole lot higher than they are now, so it was a substantial float. At some point, that will be the case again.

I have a monster month followed by two months of famine, but thats ok. I pay myself a salary, and so i bank the large part of the monster month. I get the money in my own pocket, then i do my own smoothing.

It does affect capital ratios, though.  When the client has his account debited in advance, it creates a liability for the firm.  If they pay it out to the FA, the firm itself has to make a journal entry and debit capital until it's depleted.

At MSSB, though, TRAK fees bill in arrears, but the FA still is "smoothed".  I had a big problem with that:  the liability to the firm was zero, but they smoothed anyway.