Net pay

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Sep 2, 2011 4:49 pm

Why do you Indys tout such a high payout? Seriously, I'm open minded but EJ is right there on net payout. RJ recently did a pro forma on my office (around 450 gross) and showed a net payout of 52 - 54% with a full time assistant and my own office. With a 40% cut, plus trips, profit sharing, and bonuses, (not to mention they take care of all the admin work) EJ is right there in the mid 50's too (and bonuses increase a lot with increased production). Unless you share office space and expenses, it looks like to me that there's no advantage to moving Indy. I know it's hard to believe, but I'm right aren't I?

Sep 9, 2011 3:51 pm

Probably right on payout, but its the freedom to choose how you run your business that is the draw of Indy bd's.  I don't doubt Jones' efficiencies, but some folks want the freedom to operate how they choose.  Just my two cents.

Sep 9, 2011 4:14 pm

Your math's a bit fuzzy. At 52% vs. 40% on $450 in production, you're talking a delta of $54,000/year. Your "trips and bonuses" worth that?

The NPV of $54k/year over 15 years is about $400,000.

Doesn't seem close to me.

But that's just income potential. Obviously there are other reasons to stay captive with EJ.

Sep 12, 2011 10:20 am

Northfield -

He's not saying 40 vs 52.  He's saying the 40 plus bonus, profit sharing & trips is pretty close to 52.

For me, and I'll round a bit, it's just short of 39% payout, roughly 4% in profit sharing (been 2.5 and over 5 one year I think) and 4% bonus (rounding down here - big hitters can easily double that) & the trips (2-4% or just take the $4k cash) and that is the number he is saying is pretty close to 52.  Kinda my point all along in the edj vs indy debate. 

Of course, don't ask me about my payout when the firm isn't paying out bonuses though.

Sep 12, 2011 11:08 am

That is assuming you do no VA business, which pays 6.5% on the street and 5% at Jones.

That is assuming you for no Fixed Annuity business.

That is assuming you will not use any private placement REITs.

That is assuming you don't do your insurance direct at an indy b/d which will pay you 100%.

That is assuming you don't.....

The list goes on and on.

Sep 13, 2011 9:35 am

Hulk --

Check your math there, Ace. That profit sharing is 4% of your gross really? Everyone on here is talking about percentage of GROSS, not net. The ps component is definitely not 4% of gross.

But run with it if it makes you feel good.

Sep 14, 2011 11:51 am

I would think at the $450 level, life at Jones is good.

Profit sharing, Limited Partnership, Bonuses, Trips are all kicking in a big way.

It's at the lower production ranges that the Jones payout is lower, because none of the extras are kicking in.

Of course, 450k as an Independent would be great, because as an Independent, fixed costs won't change much as production increases.

Sep 16, 2011 12:08 pm

I enjoy 85% payout as an Indy and 100% on the minimal insurance biz I do. I do have overhead, but it is pretty much fixed at $55k/year. That makes sense when you start getting over $250k GDC. RJ was pitching you to be one of their advisors, not the Indy side of their platform. Their true Indy grid is much higher, but you must have or be your own OSJ.

Sep 16, 2011 3:18 pm

[quote=LoveInvesting]Hulk -- Check your math there, Ace. That profit sharing is 4% of your gross really? Everyone on here is talking about percentage of GROSS, not net. The ps component is definitely not 4% of gross. But run with it if it makes you feel good.[/quote]

Touche.  Got ahead of myself.  Okay, back off 2% more. Again it's not that large of a % difference. 

I'd be curious to know what % of the book stays with the BD?  Not what EDJ says or RayJay says or what some overzealous indy on this board says, but what the true % of assets and more specifically gross revenue that follow.  52% of 80% is only 42% of 100%. 

Sep 16, 2011 3:23 pm

[quote=llcoolj]

I enjoy 85% payout as an Indy and 100% on the minimal insurance biz I do. I do have overhead, but it is pretty much fixed at $55k/year. That makes sense when you start getting over $250k GDC. RJ was pitching you to be one of their advisors, not the Indy side of their platform. Their true Indy grid is much higher, but you must have or be your own OSJ.

[/quote]

At 55k per year, you don't have your own full time assistant. Or, at least you don't in my neck of the woods. 

Sep 16, 2011 3:55 pm

[quote=llcoolj]

I enjoy 85% payout as an Indy and 100% on the minimal insurance biz I do. I do have overhead, but it is pretty much fixed at $55k/year. That makes sense when you start getting over $250k GDC. RJ was pitching you to be one of their advisors, not the Indy side of their platform. Their true Indy grid is much higher, but you must have or be your own OSJ.

[/quote]

The title of this, my rapper friend, is NET pay. I don't care what your payout is from your bd. You have business expenses to subtract. I'm talking about how much you take home after you run a legitimate business. When rj did their proforma analysis on my business, I too was projected at 84.5% payout. Then subtract business expenses. It ended up mid 50's net to me ... which is almost identical to what I get here at EJ - except here, EJ takes care of everything for me and gives me a solid brand. Sure, that % can be higher if you move your office home or share a space, share an assistant or just do it yourself, use only a cell phone, fax stuff from office depot, use a dot matrix printer, etc... But, if you want to run a legitimate business, I bet you're mid 50's ... NET.

Sep 17, 2011 12:44 am

There is small neighborhood grocery store a few miles down the street from my house. They have the best butter lettce, mushrooms, hot house tomatoes, etc all year round. The seafood and beef are so much better than any store , and everyone knows it, although more expensive. When you want the best or it is a special occasion you go to this store.The service is personal and everyone knows your name.The owner is my client. His profit margins are 3-5% better than chain stores.That's all. He has been offered great money to sell out .

He says his customers would never get the quality he gives them if he sold out .

Sep 17, 2011 10:52 am

I am sorry.....let me do the math for you. 85% of 300k=$255k. Minus (that is - on your calculator) $55k= $200k. Then we take $200k and divide by $300k. Looks like 67%.

I share office, technology and assistant. Professional Business office with another Advisor, CPA and Attorney. I call that EFFICIENT.....I don't feel I am lacking anything, neither do my clients.

Thanks for asking.

Sep 17, 2011 2:45 pm

Net pay is the wrong question, and may lead to the wrong answer... EJ or Independent.

The right question is REVENUE, or more accurately, REVENUE GROWTH.

If you go Independent, pull a good percentage of your clients, and your net pay goes up, that still does not answer the net pay question unless you are retiring today.

The issue which will most affect your net pay is how the business grows, especially if you plan to be around a long time...

Consider this forumula: (Revenue x %Payout) - Expenses = Net Pay.

What is most important in the formula is the revenue part, especially future revenue growth (or shrinkage).

Sep 17, 2011 2:44 pm

I have a 79 year old prospect with questions concerning her 401k. she wants to know if leaving the money in the 401k is what's best at her age, she's losing about 10k/ month and wants to know best vehicle to dump money in to.

Sep 19, 2011 9:18 am

For example, I was talking with someone who left Jones years ago because "Jones was taking too big a cut." Now they work out of a shoebox of an office, with no administrator, with a small and shrinking business. What's so great about that? But based only on payout, they made the decision. So I say payout is a poor criteria. I do believe though they are still happy they left Jones.

Sep 20, 2011 10:09 pm

Hulk, you are paying 55k or more annually for a full time assistant? Wow, that seems high. Mine is around 41k and very generous at that.

American Flag makes some excellent points. It is all about revenue, ringing the bell, making it rain. The net pay will flow from that, and your lifestyle will be good whether indy or edj.

I would add that staying with your first or second firm for a very long time helps too. These FA's who are constantly switching every five or seven years, to presumably get a big check each time, will see erosion of their clients and erosion of their gross.

Sep 21, 2011 10:04 am

When doing your math do your average bonus over three years, not as of the current year. Also remember the LP isn't a "perk" until you've recouped your investment, which at ~15% net of tax takes 6.7 years. At that point it's a legitimate "payout".

Also the math gets significantly more compelling when you go from 450k to 550k. Add another ~85k to your bottom line, where it would be ~50k at Jones.

Also remember your first 2% of business expense is not deductible at Jones. You can't run everything through their expense plan, and the structure is limited as an employer/employee plan. Some of this has changed in the last 5 years, so my understanding of the current form of this plan is a little dated.

Last, don't discount what others have said about completely losing the feeling of somebody watching you at all times, and the implied requirement to attend regional functions. If you like everyone and enjoy it, that's great, but I didn't realize what a burden it was to me until I didn't have to do it anymore. And I enjoyed my region.

Sep 21, 2011 1:47 pm

[quote=LoveInvesting]Hulk, you are paying 55k or more annually for a full time assistant? Wow, that seems high. Mine is around 41k and very generous at that. American Flag makes some excellent points. It is all about revenue, ringing the bell, making it rain. The net pay will flow from that, and your lifestyle will be good whether indy or edj. I would add that staying with your first or second firm for a very long time helps too. These FA's who are constantly switching every five or seven years, to presumably get a big check each time, will see erosion of their clients and erosion of their gross.[/quote]

Absolutely true, I have noticed when a Rep hits three or more firm changes, their business is burnt.

Therefore, if you are thinking making a change, try as much as possible to make sure it's the right move. There is no way to know for sure, only time will tell. But the decision to leave is irrevocable, you can't go back. That's why I'm trying to talk back to some of the facile arguments given here as to why Independent is better. It is in some cases, but not in others.

Regarding taxes, last I remember EJ really trimmed back what was eligible for the Business Expense Plan. So more is deductible if you are an Independent contractor. However... tax preparation is very complicated, and if you have it done professionally you're looking at $2500 a year. And you have to take the taxes out yourself, which is a pain. I suspect the math on taxes works in your favor as an Indy, but it is more work. The Jones way is nice and simple, a net paycheck.

This brings me to what I think is the biggest advantage to being Indy, but I am not going to talk about it here, because I have not yet tried it and made it work. When I do, I'll share the idea.

Sep 21, 2011 11:47 am

[quote=LoveInvesting]Hulk, you are paying 55k or more annually for a full time assistant? Wow, that seems high. Mine is around 41k and very generous at that. American Flag makes some excellent points. It is all about revenue, ringing the bell, making it rain. The net pay will flow from that, and your lifestyle will be good whether indy or edj. I would add that staying with your first or second firm for a very long time helps too. These FA's who are constantly switching every five or seven years, to presumably get a big check each time, will see erosion of their clients and erosion of their gross.[/quote]

No, not $55k for just the assistant.  He said his out of pocket expenses were at $55k total.  I'd say $40k seems a bit low when you figure any kind of bonus and or benefits and the employer side of OASDI, but that's not my point.  My point is/was that I could not in my area have a well trained (meaning well paid) assistant and have an office and cover all of my overhead for $55k.  That's what I was saying.  I don't know what the number is and probably never will.