Leaving SB

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May 31, 2009 1:29 am

I have pretty much decided to leave SB. I actually have enjoyed working there but truthfully losing a $1,000,000 in restricted stock value and now having whats left converted to much fewer shares of MS is all that I can take.

I truly believe that all wirehouses are just like vendors and it makes little difference in my practice which I use. I am not going to sling mud here and say I am leaving because SB is garbage...I am leaving honestly to rebuild my net worth. I did 950k in 2007 and 740 in 2008 now I am trending about 660k, but have had a nice recovery as most have in my asset base over tha last 60 days which is currently about 78 million.  I have been at UBS several years ago and MS is merging (effective Monday btw) with SB. So my choices are ML or INDY. I like the idea of being INDY but frankly the math isn't really working for me. I am optimistic that my business will rebound over the next 5 years and the ML deal is somewhat backend loaded. If I hit all the bogeys over 5 years it becomes a 300% + deal. If I do the math that works out better than going independent through FiNet or other platforms. I must add that I am 51 years old and realistically only have like 15 years left of doing this. I am open minded if someone has a better idea or can show me the math that will make another move better. I feel confident that most of my clients will follow me where ever I go, and yes I understand I will have some surprises...I have moved before. Any comments are appreciated.
May 31, 2009 7:19 am

I’m not sure why the math doesn’t work for you being Indy. 

  Since I have no idea what it is like to be at a wire, I'm not sure what the payout would be at ML, but if you make the move to RIA, you may pay out $25 - $40k in startup costs, but if you average 1 percent on $78 million (I would say closer to 1.25%). You're grossing $780k, which is more than you did in 2008.   I don't know where you live, but let's say your expenses are $100k (very high).  You are now taking home $680k.  That's about 87%.   You have 15 years left.  That's a good amount.  As your business rebounds, your income will go even higher.  If you are averaging 1.25%, you are producing more than you did in 2007.  You grow enough and you're pulling down over $1mil a year.  That will get you on track faster to rebuilding your net worth in my opinion.
May 31, 2009 9:34 am

The answer from a math standpoint when comparing indy to any deal with incentives inevitably comes down to the time horizon you look at.

If you look only at time frame over which you will receive incentives of whatever sort from the new firm, the math will favor taking the deal. No doubt any numbers the new firm might give you will focus solely on the time frame that coincides with their incentives, and only compare them to what your current situation is.

If you run the numbers over the projected 15 year time frame that you anticipate working, the math will favor indy. If you also factor in and compare what you can expect to earn from selling your book/business in 15 years under the two scenarios, the numbers favor indy even more.

Obviously the break even point will vary from deal to deal, but each one is designed to give you more in the short run even though in the longer run the numbers favor indy. The only real question is at what point in time does the higher payout that you get from indy outweigh the short term incentives that you can get by accepting the deal? For many, it is roughly a 3 - 5 year break even period, even excluding the greater exit/terminal value issue.

Of course, that is only the money part, and your decision should - presumably - also take into consideration other factors as well, which you are no doubt aware of, not the least of which is the greater freedom and flexibility independence offers. Look at how dramatically the landscape has changed in the past year in virtually every b/d, and ask yourself if you are completely comfortable accepting a deal that effectively locks you in to whatever firm for the 5 - 7 years that most of these deals entail. I’m sure not long ago many FAs felt comfortable being tied long term to, say, ML or SB or whoever, and through no fault of their own some portion of these same FAs today may regret being tied to a firm that is decidedly different than the one they thought they signed up with. The math won’t capture that issue, or other similar qualitative issues.

So run the numbers, but do it with your eyes open and covering the appropriate time frame that is meaningful to you personally.

Good luck.

May 31, 2009 10:01 am

Well, I doubt I could magically charge more than I am now just because I went RIA. Under most platforms I would actually gross less because I would have to give up a commission transactions of which is about 30% of my business.

  So 660k X 85%= $561,000 RIA-    660k X 44%=290,000+retirement, insurance 309,000 + upfront and deferred comp transition package over 9 years (226k year) =$535,000. ML   Granted I am not including yeards 10-15, which I am guessing would be higher as an RIA because of the payout. But I also am not calculating the values of a transition package investment growing over a 9 year period either.    I am not sure the difference is worth the headache of starting up a new business versus a "turn key" approach of driving down the street and hanging my pictures. Maybe I am missing something.  
May 31, 2009 10:11 am

And Morphius, no question you are right. I have run this over and over in my head.

I really hate the Idea of having a wirehouse stapled to my backside for the next 9 years.   I am just not sure I have all the information about the Indy platforms that I need, and when I set my mind to making a change I seem to be in a hurry to get it done.   My optimum situation would be finding and established RIA or Indy office that allowed commission transactions as well as fee based accounts and sharing expenses. I am not really sure how I would go about doing that. I am reluctant to consider some of the old insurance based BD's as my vendor.   I may take another look at some of the local FiNet offices and see if they have space. This is a tough decision, I don't want to go through any other moves after this one.
May 31, 2009 10:21 am

What about Wells Fargo / Wachovia ?  They would pay upfront to bring you in.  I do not know if the deal would be comparable to what ML has offered you, but at your production level 100%+ would be a reasonable starting point.  Once in WF/WS you can then transition to FiNet- you stay in the same platform, your accounts are not distributed to other reps and you have the benefit of being independant.  However, WF/WS has issues and they are still trying to incorporate 3 platforms into 1.    Just a thought.

May 31, 2009 10:44 am

[quote=Whatnow]And Morphius, no question you are right. I have run this over and over in my head.

I really hate the Idea of having a wirehouse stapled to my backside for the next 9 years.   I am just not sure I have all the information about the Indy platforms that I need, and when I set my mind to making a change I seem to be in a hurry to get it done.   My optimum situation would be finding and established RIA or Indy office that allowed commission transactions as well as fee based accounts and sharing expenses. I am not really sure how I would go about doing that. I am reluctant to consider some of the old insurance based BD's as my vendor.   I may take another look at some of the local FiNet offices and see if they have space. This is a tough decision, I don't want to go through any other moves after this one.[/quote]   Whatnow - I was a little worried about giving up the commission biz, but it is nice to not have to worry about that side of the business.   In fact, you could charge a little bit more when you go RIA.  Might even save the clients some money in the process.  My clients are all paying less than they were at Jones.  I guess I would have to see how the wire stuff works.   I think you really need to look at the tax benefits, the buying property for your business.  All of which can be takin' into account when you sell your practice. 
May 31, 2009 11:21 am

Oops, not a 5 - 7 year handcuff … 9 years. How many clients would you confidently put into an investment with a 9 year CDSC, even if it was a bonus product?

And to clarify, I did not specify RIA and fee only, nor is there any “magic” involved. However, you really should know that t is NOT an either-or proposition: roughly a third of all RIAs also remain registered and do commission business through an independent B/D. This is referred to as being dually registered or a hybrid RIA. So you would certainly not HAVE to give up your commission business to go independent.

I also understand that your deal could go up based on growing your business. However, if you grow your business by whatever rate you want to model you should also model that growth under an independent scenario. It shouldn’t dramatically change the basic mathematical result, especially if you choose to ignore the value you would likely get selling your book internally vs. having the ability to sell it as an independent.

However, based on your recent responses I know you don’t seem very interested in spending much time or effort on this, as you want to move quickly regardless. In that you sound like you are among the majority of FAs who are so comfortable with what they know (wirehouse world) that they just don’t take the time or effort to explore the independent option when an easy, turnkey option is available right now. There is a lot to be said for driving down the street and hanging your pictures and collecting a nice waffle - no doubt.

But for someone who is paid to consider various long term investment options for your clients, neglecting to exercise the same due diligence and care with your own financial future seems … well, surprising. But you are in good company. Surprisingly few wirehouse FAs ever take the time to seriously research the independent option.

Independence is NOT for everyone, by any means, and based on your few comments here it probably isn’t right for you. But why the urge to rush this long term decision when you have not even thoroughly explored all your options?   

Good luck.

May 31, 2009 11:25 am

btw - I used “takin” wrong.  should have been taken.

May 31, 2009 12:00 pm

Costs and revenue aside. How about human factors and skills to consider. Are you prepared to build a company? Are you ready to face being your own marketing expert, contract negotiator (yes, you manage overhead expenses, but, you still have to allocate time to manage that management aspect). If you need things, for instance that you don’t have “staff” to do,  your time is going to be the cost in excess of dollars and cents.

  Are you best suited to run a company with all of that - accounting questions, payroll, hiring, training, firing, advertising, etc. AND also be the best advisor you can be? What is your advisory process? Analysis process? How do you trade? Are you an efficient practice with limited product and trading strategies or are you more of a generalist with bits and pieces of things - insurance, annuities, a few trading accounts, some covered calls (this is rhetorical, you don't have to answer) or are you a PIA (ML) or PMP (UBS) advisor that has discretionary trading accounts with a master portfolio and a few accessory products and strategies to meet client needs? How much TIME do you spend being an ADVISOR, RESEARCHER, etc. Then, how much time will you have to spend being an independent business owner?   Just some questions and thoughts for the sake of examining it.   Kicking & Taking
May 31, 2009 12:38 pm


There are tons of established independent shops that would be more than happy to add you as a partner if you are looking to share expenses and join an established shop. Many are hybrid RIA and B/Ds that allow fee based and commission based accounts.

You could team up with a few other Advisors who could help you get set up (it’s not that difficult). In return you could share expenses by giving up a % of revenue. This might be your best bet since they would have an office, support staff, and all the systems in place.   In essence, it would be “turn key”.

Some of the hybrid clearing firms included LPL, Commonwealth, and Raymond James.    

Good Luck!

May 31, 2009 12:42 pm

I echo many of the same comments made by Morphius.

The only significant item to add is the IMMEDIATE recapitalization of the equity in your practice. Yes, you can work out something with your existing employer when you leave, however, it will be on their terms, and not yours. Think about the equity that you would have in your practice, and the ability to sell it, as you wish, to the person of your choosing. It’s another item that you need to work into your business decision.

You are in a great position… as you had mentioned before, the thought of having a ‘wirehouse’ stamp on your forehead for the next 9 years is a disgusting thought, IMHO.


May 31, 2009 12:50 pm

I have explored the Indy channel a bit. Specifically FiNet, And I started my career in this business 19 years ago in an independent office. So I have had some exposure. I have also owned my own business’ albeit retail over the years so I  know about the headaches of management and I am not sure I want to wear both hats at this point in my life.

  I like the idea of a Hybrid RIA. I would be a little concerned about any restrictions that a BD would put of an individual that would prevent them from being a "Real RIA"...specifically real estate and finance.   If anyone has any names of hybrid BD's that I should look at in the SW...please I am all ears.   In my market LPL and RJ are not something I would consider. I would rather have a generic name and clear through Schwab or Fidelity if I could.
May 31, 2009 1:29 pm

Don’t even bother with Finet… Same $hit, different name.

I would do it this way… Start with the RIA structure, and then build your BD relationship around the RIA. Why worry about the BD piece, when it doesn’t comprise the majority of your business? The BD piece in our hybrid RIA isn’t something that restricts us AT ALL. But, if you were at a BD that offered fee-based advisory services, you could BET that they would be up in your ass about the way you conducted your RIA business.

So… start with your ideal situation (most likely RIA) and then work backwards from there. You know what you are doing, and shouldn’t be intimidated by doing the right thing.

Call Fidelity and have them walk you through their ‘Hybrid One’ concept. It might be what you are looking for.


May 31, 2009 1:32 pm

I second Captain’s sentiment.

May 31, 2009 1:53 pm

I’ll have to counter Captain’s Finet bash. After quite a bit of due dilligence with all the independent optoins, I went with them and have been pleased. Technology and back office support better than expected. I think much of the negative vibe about them stems from their affiliation with their wirehouse parent, but really the flexibility and freedom I’ve experienced is better than what the RJ and LPL guys I know experience. The fit is particularly good with my business model - discretionary portfolio management based on our own models.

  Outside of that, the advice from Captain, Morphius and Morean is excellent. Just know that they are a bit biased toward an RIA option vs. an independent b/d option.   However, my sense is that your primary motivation is monetary. And although the independent route may well be more rewarding in the long run, in the short term the primary benefits you will accrue will be non-financial. The freedom to brand yourself, hire the help you want, create the office environment that reflects who you are, have no more sales meetings, no more manager poking around, no more politics, no more worrying about tommorow's negative headlines. But you will not immediately re-monetize your practice the way you will by taking the ML deal.   If it's mostly about the money, then you already know what you're going to do.   Best of luck.
May 31, 2009 2:12 pm
However, my sense is that your primary motivation is monetary. And although the independent route may well be more rewarding in the long run, in the short term the primary benefits you will accrue will be non-financial.

Which brings us full circle back to my post pointing out that which option produces the best financial result is entirely dependent on what time frame you consider. Taking the money will clearly put more money in your pocket in the short run - but not so in the long run. The cost to get this short term bump is the 9 year handcuff, and the 50% percent and more of your future revenues that you voluntarily give to ML, or whoever. In this sense, they are simply time shifting and giving you a portion of YOUR OWN future revenues today. There is no such thing as a free lunch.

Doesn’t mean it isn’t tempting or even a reasonable choice for some people. But you’re fooling yourself if you think you are better off FINANCIALLY by staying in the wirehouse world if you have a 15 year time frame. Easier, quicker and less hassle (in the short run) to just drive down the street and hang up your pictures - absolutely. And then you have to hope like hell that everything works out OK, including unknown mergers, acquisitions, manager changes, etc. because you’re going to have to pay a lot to move before the 9 years are over and they earn back all the money they gave you … and more.

May 31, 2009 5:25 pm

Thanks guys,

I am not afraid of going Indy...in fact I would prefer it. I like the idea of the fidelity hybrid RIA...thanks for that recommendation. I really like the RIA BD combo idea, that would satisfy all of my concerns. I wouldn't get the cash up front, but I really have not got anything I am dying to buy right now. :)   I am not jumping into anything, but you have all given me much to think about. I will take my time and give all of this the research it deserves. Whatever decision I make I want to make sure its the one I can live with for a long time.   Thanks guys..
May 31, 2009 6:40 pm

I hate to sound like ad advertising here but since we're on the subject of "which Hybrid Programs" are worth exploring, Whatnow, please feel free to explore TradePMR's Hybrid Program in partnership with a 100+ Year Old NYSE Self-Clearing firm named Sterne, Agee & Leach.  You can certainly call or email me for all of the particulars.  My phone # is 888-579-8640, email:  [email protected] or website:  www.tradepmr.com.  I would encourage you also to review the other good firms mentioned, such as Fidelity too so you can make an informed decision.  Considering I work with both the commission side and the RIA side, I'm not devoted only to one model.  Whatever your decision, best of luck to you.  The members on this forum have shared some excellent thoughts, like always!

May 31, 2009 9:53 pm

You may want to kick the tires at Ameriprise Financial.  I have been in the business 17 years and spent most of my career at Merrill Lynch.  I have also been with UBS and Wachovia Securities.  Ameriprise’s transfer comp package is made up of 4 pieces.  A 3-year grid lock which in your case would be between 50-52 percent, an upfront check of 30-40%, an asset bonus which is based on bringing over 50% of your assets in the first 6 months, then a production bonus for months 7-12 which can be up to 100%.  The company is financially strong and with its recent purchase of H&R Block Financial Advisors they are currently integrating the platforms which will bring their brokerage platform up to speed.  They also have a great financial planning tool and platform for fee-based financial planning.  I have had 2 SB advisors join my office and the transfer of assets has been pretty compatiable.  Ameriprise also has two platform for advisors, an employee channel like SB and a franchise channel which is more like an independent.  They are flexible and what I have recommended to some advisors is to join us in the employee channel to learn the culture and systems then move to the franchise side 3 to 5 years down the road.  The transfer is seamless for clients.  You can build equity in your practice and then sell it when you decide to retire.  Ameriprise even has a department which will help you find a buyer and do all the financing.  If you would like to learn more feel free to email me at [email protected]  My name is David.  You can also check out www.joinameriprise.com.  Good luck with your search.