HI Koop01! You are doing good homework. I worked in the wirehouse atmosphere for 20 years and the independent the last 8.

While it may be more appropriate for you to start off at a bank or wirehouse, don’t throw out the idea of an “independent”. I put that in quotes, and I’ll explain why in just a moment.

Being a new FA is a tough business to be in. You have to work like crazy to “make it”. But when you do, it’s a fantastic business to be in.

I’ll give you what I know from my wirehouse experience and experience recruiting both wirehouse and bank advisors. Others may correct me or enhance the info I offer.

Pre Production Phase is literally, the phase before you start producing fees or commissions for the brokerage firm. In my experience, it is basically your training phase - the time you are studying for the Series 7, state and other exams. You are also probably learning about the company and it’s products and services during that time.

Post Production is after training, when you are “cut loose” to produce! That’s when the ‘clock starts ticking’ and you are trying to meet the hurdles and production minimums.

My experience is that the hurdles are the short-term interim goals regarding production and assets under management that the firm wants you to hit. When you hit one, you’ve cleared a hurdle.

Production minimums are just that: what you need to produce in a calendar year to be able to either stay on with the firm, OR stay on without receiving a reduced payout.

Wirehouses and banks basically work the same way. VERY simply, for every dollar you bring in, they keep 60-70% and use it to provide you with the “services” they offer their advisors: an furnished office, computer, computer services such as stock quotes and basically everything down to the paperclips.

Most banks and wirehouses offer a salary to start, while you are building your business. This definitely helps if you are single and/or have no other source of income. The hurdles are high and tough, but CAN be reached. Once you go into production (post-production) your salary will go down and the amount you are expected to earn from fees and commissions goes up until you are 100% fee and/or commission based.

Now the independent side. I started in the business when the “independents” did NOT have a good reputation. They were usually for wirehouse wash-outs and insurance ‘salesmen’ who wanted to supplement their income with stock and bond sales.

This has done a 180 degree turnaround in the past 25-30 years. Now, with the products and services the independents offer, they are basically indistinguishable from the wirehouses.

Two big differences: the amount they keep for providing their services to you and the “pressure” to place clients in particular products. At the banks and wirehouses there is often strong emphasis on doing a certain type of business, depending on the brokerage climate at the time. For example, I THINK Merrill really wants advisors to cross-sell mortgage products and the like… Sometimes you will get a manager who will really put the pressure on his/her troops to do these products. Some managers not so much…

At an independent, there is no pressure to sell or otherwise place clients in a particular product or platform. That’s NOT to say they don’t/won’t pay a little more to provide an incentive to use a particular product or platform.

Regarding payouts: “Independents” operate very lean. They only retain approximately 10-20% to provide the advisor with basic services - compliance, a web-based platform, trading system, etc. The rest is left up to the advisor. You MAY pay everything else, like your office, tech subscriptions etc. I will say this, IF you watch your expenses, you definitely come out ahead with an independent.

I put independent in quotes earlier, because there are some branches of independents that are offering an 80-90% payout AND providing you with an office, assistant and pretty much everything else you see in a bank or wirehouse. Many wirehouse people will say “I don’t want to mess with buying the paper towels, paying rent and all the other stuff that comes with being independent.” With these unique branch offices, you won’t be stuck with that. They look/act almost exactly like a wirehouse with a few minor exceptions.

That being said, the best track I can imagine is to get the training and start at a wirehouse or bank, clear the hurdles and make their production minimums for a few years, build a client base and then move to an independent office. Like I said, you can find “independent” offices that essentially operate like a wirehouse or bank.

One thing to be careful of: With the banks or wirehouses, many (most?) of the advisors find the hurdles so high that they choose to team up with other more mature advisors. This can protect you if you are not making your numbers or take some pressure off. Be careful if you do that. I have seen teams run off lower producing advisors and keep the accounts. In addition, some teams simply ‘use’ new advisors to bring in assets, THEN let them go.

The ideal thing would be to STAY out of a team atmosphere unless you have some GUARANTEE (eg written agreement) to purchase their business some time in the future. If you stay away from the teams you are leaving yourself the most flexibility possible.

Finally, the wirehouse like to pay their bonuses, not as cash in the year you earn it, but in stock or stock options that have a 5 year vesting schedule. If you leave, you leave these bonuses behind. This is one way they get you into the “golden handcuffs”. If you choose to leave and go with an independent firm you will lose those bonuses. Independents on the other hand pay cash bonuses in the year you earn them - no game playing.

Obviously, I sound biased. It’s not sour grapes, it’s just the reality of having been on both sides of the fence. I like the independent side alot more.

Hope this long winded answer helps. They didn’t name me “Wendy” for nothing!

PS Wrap business is another way of saying fee-based business. A client has an account where you can buy or sell for them and they do not pay you a commission each time you buy or sell. Instead, they pay you a flat percentage based on what the account is worth at any particular point in time.

Take care, and good luck!
Wendy

Let me start off by saying that I’m very new to the business. But, having said that…it seems like fee based is definitely the best way to go in the long run because you’ll continually be making money so it’s a healthier, more reliable source of income and it won’t put pressure on you to try to find ways to make trades in clients accounts so you can generate a commission. Also, if you find a regional firm, it will be more like the “independent” B/D that Wendy talked about. There’s less pressure to push clients in a certain direction giving you more freedom to base your advice on suitability. Good luck to you!