Realistic Sign on Bonus and Expectations?

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Jun 9, 2008 8:01 pm

Hey guys and gals,

 
I am currently a 100% fee based RIA in the Arizona area.  I currently manage about 60mm at an average annual fee of 1.1%.  Thus I have a GC of just about 650K.  I am not really unhappy or looking, however after reading some of you posts, I have to admit the numbers are very attractive.  I currently only manage investments, and do not help clients with any other matter (estate planning, insurance etc.).  I have my CFP and CPA so I would like to start using these to better help clients, however my firm is strictly a money management firm.  I have been recruited my a friend of mine at Merrill for about 2 years.  He says I would have a great platform, and they would be very interested in presenting me with a large sign on deal.  I would like to know what type of sign on to expect, and what the expectations would be?  I am confident I could move over 50% of the clients (probably many more actually, but I want to be conservative).  I also am confident I could have a much higher production by being able to offer other services.  Thanks in advance for you advice!!!
Jun 9, 2008 9:07 pm

A general rule of thumb is 75-200% of trailing 12 or a little over 1% of AUM, around the same amount for you, depending on what type of business you're doing and where you're trying to go. (Obviously if a lot of your stuff is in proprietary products or you did a lot of transactional stuff, that would be less attractive than a "turn the meter on and collect fee" book.)



Beware of the "large numbers" you're hearing from the wires. The payouts there will be rather low (37 bps or so, give or take) and the sign on bonus will likely be paid out as a loan over a five-year period, with numerous caveats in the fine print. I'd also want to make sure that the branch manager recruiting you is someone who can and will navigate through the beaurocracy of the company on your behalf to get you up and running from DAY ONE so as not to loose valuable time moving clients. I've seen a couple people who had managers salivating to get them over and then sit around doing nothing while the new guy struggled on the phone several days wasting time with idiots in some other department trying to clear their rep number or get passwords and usernames to be able to access systems. Little things like that can destroy your move if the branch is disorganized.

Jun 9, 2008 11:50 pm

Fee - a major question is what are your current expenses?  In other words, what do you currently net from the $650,000 in GC?  


Let's say you did take 50% of your clients, so your wirehouse GC is $325,000.  From that you would likely receive $120,250 (37%) in W-2 income, plus some 401(k) contributions.  You would have a shared assistant (shared with anywhere from 3 to 8 other brokers).  Yes, you could do some insurance business that you aren't currently, but the payout on those products through a wirehouse grid is pathetic and there would be some other products and services you would be able to market to your clients.  


Accepting a "sign on deal" usually means you are stuck for 5 to 8 years.   Whether it makes sense or not for you will first hinge on what you are currently taking home currently as compared to what you would take home by leaving.
Jun 10, 2008 12:23 am

I hope this is a joke.

Jun 10, 2008 9:52 am

FBC-

 
I am having a hard time understanding why you would want to do this.  If this is the truth, then why don't you just affiliate with an indy B/D and do the insurance and planning or whatever.  Really, the only thing you CAN'T do right now is sell securities and insurance.  But you can do all the planning and advising as an RIA.  The other thing you could do is get a network going with a good insurance agent.  You can cross-refer to each other.  You do all the planning, and he just provides the insurance policies/annuities.
Jun 10, 2008 7:56 pm
Guys,
 
Thanks so far for the feedback.  I don't understand the joke, nucking futs, or this being untrue comments.  I am not some massive multi-million dollar producer etc.  In fact most of the advisors I work with are at the same level as me if not higher at our firm.  The money management firm I work for is a small botuique firm and they do not allow the advisors to sell other products or provide financial planning.  We simply manage assets, and we are really good at doing this (very good returns over the past 10 years).  The reason I am asking is I have never really searched for a new position, and am not well versed in the B/D world.  I am sure I will consult with a specialized recruiter before I ever make any decisions, however I figured this would be a great place to start.  To answer the compensation questions, I am still a junior associate so my payout is relatively low.  After all expenses and bonuses I netted about 24% payout last year or just over 150K.  I know this seems low, however once you become an senior associate (in about 3 more years for me), I will jump to about a 32% payout.  Once again thanks for all the input!
Jun 10, 2008 8:54 pm

Fee - thanks for the answers.  Now a couple more questions - 1)  who brings the clients into the practice and/or do you have experience prospecting for new business?  2)  do you meet with your current clients or does a senior associate?  3)  Has this been your only job in the industry - in other words, do you have any "hands-on" experience with insurance and other investment products/estate planning, etc?

 
The reason you received so many "crazy" responses is that they assumed you personally were grossing the $650,000 and then just had to cover your expenses, meaning you would be making in the range of 50-60% (taking home $325,000 to $390,000), which ML would never be able to match.   I assumed if that were the case, you wouldn't be even asking these questions and were likely receiving much less in compensation. 
 
If you would be so kind as to give us a better feel as to your experience, time in the industry, etc. and the answers to my questions, we can steer you a little better.  My gut tells me Merrill probably isn't the place for you and I have some ideas, but I don't want to answer until I know your situation better.  Thanks!
Jun 10, 2008 9:16 pm

Here are the answers to your questions:


1.) We have very solid relationships with several large CPA firms, insurance agencies, and estate planning attorneys in the area.  They reffer about 60% of our business to us.  The other 40% is generated by client refferal and seminars.  I have pretty extensive prospecting experience, I lead most business development seminars, and have extensive experience prospecting for circles of influence (attorneys, CPAs etc.)
 
2.) Only I meet with my clients, I am a junior associate only because I produce less than 1mm in production (that is the only difference).
 
3.) I have been in the business for about 9 years (directly out of college).  I spent 2 years working as a associate for an estate planner at Metroplitian Life.  I then spent 3 years in Fidelity's Private Client division.  I have been at my current firm going on 4 years.  So I do have quiet a bit of experience with other products, planning etc. 
 
The reason I am considering ML is they are very dominant in our market, and I have a very good relationship with the branch manager (I have known him for several years).  Hope this helps.
 
 
Jun 11, 2008 9:29 am
fee based consultant:

  The money management firm I work for is a small botuique firm and they do not allow the advisors to sell other products or provide financial planning.  We simply manage assets, and we are really good at doing this (very good returns over the past 10 years).


If you want greater autonomy "to sell other products or provide financial planning" you will not find it at ML or any wirehouse.  Just the opposite.  Ask the ML BOM if you could produce and be paid for a comprehensive financial plan - not ML, buy YOU.  Ask if you - not ML's RIA subsidiary but you - be paid for offering advice.  You might be surprised at what you learn.

And remember that upfront money would be locked in to them for quite a few years.  You want to leave, you have to pay them back.  You can't pay them back, you can't leave.  There's no such thing as a free lunch. 

fee based consultant:

To answer the compensation questions, I am still a junior associate so my payout is relatively low.  After all expenses and bonuses I netted about 24% payout last year or just over 150K.  I know this seems low, however once you become an senior associate (in about 3 more years for me), I will jump to about a 32% payout.  Once again thanks for all the input!


Do you have any control over your expenses?  Or is the client acquisition through the firm exceptionally strong? That is an awfully low payout, so the question becomes are you getting full value for the 76% that you do not keep?

Have you considered leaving your firm but staying RIA, either on your own or, based on your experience level, more likely with an established RIA?  There are always RIAs looking to add folks with an established book.  You would likely find the autonomy you seek while netting more.  You wouldn't have the wirehouse brand - for better or worse - but clearly your clients ALREADY have demonstrated they don't place a high value on that or they would be working with a ML FA right now.

Open your eyes to your real possibilities, not simply those right under your nose.  Do your own research and homework on your options - don't leave that to recruiters or branch managers, who obviously have a vested interest in your decision.  Don't delegate away your future to someone else. 

Good luck.

Jun 17, 2008 9:10 pm
What do you think????
 
Like I had mentioned earlier,  I personally do not know any other RIAs in the market, however the ML guy is a friend of mine that I trust (to a point :).  They are talking about an upfront sum of 150K cash, 120K draw/salary for 24 months, and 250K ml stock at the end of 60 months.  The goals would be to achieve 75% of my current production in fee based business over by the end of 24 months (roughly 450K).  I then have targets beyond that to obtain the 300k stock.  Does this sound realistic.  It is only coffee table talk so far, nothing in writting etc.
 
Thanks
Jun 17, 2008 10:27 pm

You want t know what people think?  I think there is no such thing as a free lunch. 

Everything that you are being offered - the upfront cash, the draw, the stock - is yours in exchange for locking yourself in to them for along time ... generally 5 - 9 years.  What price do you put on your freedom?  Sounds to me like your personal price is considerably less than they are offering, so who cares what people think?

They're handing you the rope.  Do with it what you will.  Just don't say you weren't warned.  You just didn't want to hear it.




Jul 26, 2008 11:53 am

Sorry for being out of pocket for so long.  I have been meeting with ML, SB pretty extensively over the past month.  There fee based platforms are very robust, and with discounting can average around 1-1.25%.  I am going to take the advice of this forum and start to look for some local RIA firms to explore that route as well.  Morphius, I have read many posts and I appreciate your honesty dealing with most folks.  Like I had mentioned earlier I simply am in no hurry to move (just starting to explore), I am very well liked at my current firm and the environment is excellent, it is just too one dimensional for me to stay the rest of my career.  I did not get a CFP, MBA and 2 parts of the CFA to simply be one dimensional.  Does anyone have any thoughts on Smith Barney or if I decided to go Indy Raymond James platforms?  Thanks!!!

Jul 26, 2008 12:36 pm
fee based consultant:

Sorry for being out of pocket for so long.  I have been meeting with ML, SB pretty extensively over the past month.  There fee based platforms are very robust, and with discounting can average around 1-1.25%.  I am going to take the advice of this forum and start to look for some local RIA firms to explore that route as well.  Morphius, I have read many posts and I appreciate your honesty dealing with most folks.  Like I had mentioned earlier I simply am in no hurry to move (just starting to explore), I am very well liked at my current firm and the environment is excellent, it is just too one dimensional for me to stay the rest of my career.  I did not get a CFP, MBA and 2 parts of the CFA to simply be one dimensional.  Does anyone have any thoughts on Smith Barney or if I decided to go Indy Raymond James platforms?  Thanks!!!



Somehow, we were able to manage without you.

Jul 27, 2008 7:17 pm

Frank don't join a forum and waste peoples time (don't you have something better to do?)