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Hiring Jr. FA - Younger Brother - Need Advice

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Nov 28, 2010 4:53 pm

Background:  I'm 35 years old, affiliated with major IBD, been in business for 12 years, about $115 Million AUM, 400 Households.  I have 3 partners, we all share overhead expense equal and each partner has about the same AUM I have and we share a common brand/practice name but each have our own client base and do not share clients.  All of us are about 70-80% advisory/fee-based, with the rest VA's and insurance and 12b1s.  We have two Jr. FA's that each do about $250k in production and he have them on a 50% payout (these were transfer FAs, not newbies).   I have a younger brother, 23 years old, just graduated for college in Finance.  He worked for me off and on as an intern in school.  Smart and fairly motivated.  I have agreed to hire him back as a new FA and he wants to start from scratch and build a book like I did.  I don't want to give him special treatmeant and he doesn't want it.  I'm trying to finalize a plan and help him set goals.  My 3 partners are in agreement, but he's "my risk and responsibility:"

Here's my initial thoughts:  I pay him $2,000/mo out of my own pocket, salary 1st year and pay all his overhead and give him an office here.  His focus will by brining in prospects from his own contact network and him and I together meet with prospects and I would help him close, but they would be his clients.  I would want him to bring in $2.5 Million first year, and gross about $35,000.  That would "pay me back" salary and overhead.  I'd want at least half of that AUM to go into Fee based.  He would get a 50% cut of anything north of $35,000.  Year two I'd drop the salary to $1,000/mo and want him to bring in another $3.5 Million and have $75,000 gross, and he'd get 50% cut of anything north of $12,000.  Year 3:  salary goes away, another $4.0 Million in new assets (bringing the 3 year total of new AUM to $10 Million) and $125,000 Gross of which he gets half.

I have considered myself (and maybe my partners) doing some "book pruning" and giving him our lower tier clients and split that biz 50-50 but have not committed to this as it may be offensive to some clients.

Any thoughts?  Is this a fair plan for him (and me)?  Are these reasonable AUM goals?  Anyone had experience transitioning lower tier clients to a Jr. FA?

Thanks for you input!

Nov 29, 2010 2:22 pm

It sounds well thought out.  I would hold off on the "book pruning", though.  Firstly, you will probably want to be reasonably sure that your brother is going to have success and remain in the business, unless you really don't care if the lower end clients are retained.  But the client experience of being reassigned multiple times is not a good one. 

I would use the book pruning as a reward tool.  Like a parent matching what a kid earns as extra motiviation.  After he brings in a couple of clients, give him a freebie, and continue to pass clients down as he shows the ability to succeed.  That way, he will see leverage in his efforts, and likely work even harder.  If you pass assets down first, I suspect it would hinder your primary motivation of making him self-sufficient.

Nov 29, 2010 4:25 pm

His goal for the first year should be $4-5MM not 2.5

Nov 29, 2010 7:32 pm

Is your brother licensed already?

I have a fair amount of experience in being a Jr. FA, hiring fa, developing them, and promoting them.

My current Jr. Partner was just like your brother. Hired him right out of college as an unlicensed fa. A year in, he got licensed. A little while after that, I had him soliciting bond trades and ira stuff on the small part of a large book. He cut his teeth on the small stuff, and did a pretty good job of developing some relations I didn't have luck with. I would say, this was indeed a multi year deal, now in year 8 or 9. After he had 4 yrs, we stayed together as partners, but he left the bank branch I was in, and we started working another branch. Worked out pretty good, he's a b type personality, while I'm an a type. According to resch, that A type Sr. and B type Jr. is by far the most successful partnership scenario. 

It's hard enough making these things work, without involving family. You have to ask yourself if you are hiring the "best person". Also, can both of you be totally objective in separation of biz/family?

With my partner, an admittedly odd duck, he's very comfortable being in a secondary role. I've given him opps in the past to break out on his own, but prefers my leadership and mentoring.    

Nov 29, 2010 8:12 pm

I had you figured for a type "not A not B". I see myself as AB, interesting research on the partnership scenario.

Nov 29, 2010 8:18 pm

Thanks for the posts.  I especially like the idea of the book pruning/matching program as an incentive.  He is currently studying for the 7 and 66 and is planning on taking it by year end or early next year.  Our B/D has some additional sales training home office classes for newbies and web modules that I'm going to require he completes.  He already knows a lot of the ops/admin stuff from being an intern which helps.  We've already discussed that if things don't work (based on the numbers/goals I'm giving him) that there will be no hard feelings.  He did a lot of admin work for me as an intern but I don't want to give him any more of this because I feel it will be a distraction/avoidence behavior for him pounding the pavement and building his own book.  $4.5 Million is a better year one number and I know he'll shoot for that, but I figure $2.5 Million is a pretty easy bogey for year one.  He's got a pretty good network of prospects even though he's young, and hopefully he can lean on me and our team for the "experience" objection.  Better than I had when I started from scratch.  I just hope he is as "hungry" as I was.

If anyone else wants to chime in, expecially on the production/AUM targets I've set, feel free.

Thanks to all!

Nov 29, 2010 8:37 pm

Times, I'm only a B type when it comes to yard work, and house chores...

Nov 29, 2010 10:22 pm

In4, thanks for sharing this "case". I'm interested because my son has interned with me and who knows, perhaps he'll be interested in a few more years.

Having a personal "bogey" par works in golf, no reason it can't work for family, better to invest in learning and doing it right than making the tax man richer.

In my case, I would require that the new college graduate work outside the firm for at least a year or two. There are just too many basic lessons that come with the first job, and no matter who you are, one of the benefits of having a few different jobs at the start is that as you mature, you can leave one situation and be that new person in a new setting.

Especially for this career, where commitments and relationship building needs to be longer term. I'm sure you're in the best position to assess the potential opportunity costs of him starting now versus later. Having the opportunity to do meaningful work and share rewards with a loved one - potentially over decades - is a rare blessing indeed.

Big ... is back. I mentioned to a retiring friend that full time golf is his new "work", and he just about hugged me and said that statement is revelation to him. ( Type A.) 

Nov 30, 2010 5:18 pm


He has been trying for the last 6 months to get a job in the industry (away from me) for a couple years first, as that was the orginal plan.  The problem is that all the banks now want licenses and some experience, or want him to start as a teller for a year or two, and the major wirehouses are not really hiring college grads.   Even some of the local mutual fund and annuity outfits have frozen internal wholesaling postions.  So his choices were life insurance companies and maybe Edward Jones (where I started).  We discussed EDJ but figured if he's going to bust his ass for 2 or 3 years and then take his clients Indy or to our firm, he might as well just do that here as it will avoid hassel later.  But I agree, the formal training at EDJ would have been nice.  But I have access thru my B/D for this type of training, maybe not quite as good, but something anyway.

I'll try to keep the board posted on how things pan out the next 6-12 months.

Nov 30, 2010 5:24 pm

Do you have $115 AUM yourself or is that the combination of all 3 partners?

Nov 30, 2010 6:19 pm

He said the 115 was just him...

[quote=Indy4Life]Background:  I'm 35 years old, affiliated with major IBD, been in business for 12 years, about $115 Million AUM, 400 Households.  I have 3 partners, we all share overhead expense equal and each partner has about the same AUM I have and we share a common brand/practice name but each have our own client base and do not share clients. [/quote]

Nov 30, 2010 7:23 pm

Indy4, you highlight the difficulties of bringing ANY young people into this industry. Too bad for our profession.

I'm sure you are in the best position to decide. In my case, I would not be morally opposed to having Jr. take even the training program wherever he could get hired, knowing that might be a shorter term arrangement.

The hiring (training) firm would still get a crack at him, and he and clients and society and probably you would enjoy the up front (present/future compounded value) of his increased maturity, perspective and training (hearing it from someone else) - validation, internalization, objectivity and the like.

As you know, there's nothing wrong with starting with a solid foundation in life insurance, and you always have Jones, AMP, buy term and invest the rest place and such to start with a "humble" perspective.

Dec 4, 2010 5:29 pm

Yes, the $115 Million was just me.  We have about $400 Million as a team.