Question for indy's

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Jan 14, 2010 8:35 pm

I’m at one of the big 3 in manhattan. Thinking of going Indy within the next 12-18 but just really begin to explore it.

Would move back to long island if I did this ( manhattan just to freaking expensive ). Up until now I’ve basically been brainwashed for the last 15 years by my firms BS and the fact that all my friends still work at the bigger firms just changing names for huge paydays.

I’ve met with the other big firms trying to recruit me in the last 3 months and basically came to the conclusion the huge money being thrown around just isnt worth it to me because I’d have the same crappy quality of work life I have now and my clients arent going to be any better off so then I might as well just keep my retention award and stay then if I wanted.

But going indy has intrigued me. Mainly I’d consider Ray J as I have 1 friend who works in a Ray J branch and he is pretty happy.

So after all this [email protected] I just wrote I get to my question for anyone.

Other than the quality of life benefits and running your own business benefits what exactly are the tax benefits etc. I have no freaking idea and I dont want to ask my accountant because he is a client and I dont want to stop the referrals yet if he thinks I’m going to jump ship ( for same reason I dont want to ask my clients who are accountants )

Any thoughts would be appreciated

Jan 14, 2010 10:38 pm

Comments from a recent EX WIRE…

Just make sure you want to be an entreprenuer. Not 100% sure of your specific question, but here are some thoughts from an exWire of many yrs. The gratification is amazing after you transition and the fact that you OWN the business feels great. You will have created an entity with real assets and rev. that is now really worth something (that’s why all the schmucks wanna give you 300%). Once you get out of that wire world you never have to deal with the nonsense or backstabbers again. Do keep in mind, instead of hating the “man” you now are the man. It all rest on your shoulders. You now are responsible for your own happiness and can fault no one but yourself (your staff looks to you for happiness and you can’t whine about the firm because that’s you!) Personally, I wish I did it sooner. The compliance and office management responsibilities are more than anticipated, but I wouldn’t go back if they gave me 350% and trust me - I can go back and no FA would be calling my book! Seriously - once you do it and move your book you’ll wonder why you stayed and tolerated the B.S. There is so much waste and red tape at the big firms. Independence is definitely not for every FA and you should really think long and hard what motivates you to do this. The payouts are not 90% vs. 45% since you now have expenses and admin fees. It more like 55% vs. 45% depending on how frugal you run your business. Definitely some tax benefit and AMT relief vs. a W-2 serf. The negative sentiment about big firms will gradually evaporate when the public gets more into the market, so think beyond the current trend to “go indy”. Their still gonna have a bad aroma for a few years! Ownership has it’s priviledges as well as resonsibilities. I will say that I am much happier and it feels like a new challenge of running a firm MY way. Dual monitors - my call, new software I do it. New assistant - just do it! You accept outcome for your strategic calls and decisions instead of trusting a branch manager to control the purse. I feel renewed and excited to see progress and run the show without having to compete for resources or make the business case for money to be spent beyond the typical support you’d get from a manager doing you a “favor”. Maybe this would be stressful for some. You have to have the desire to create and rebuild your business and make it happen. The problem I see with the big guys is that they are burdened with a bunch of worthless middle management directors that procuce nothing for you or your clients. They want to cross sell you and make assets sticky. The obvious agenda is all about selling you on why you need them and their elite platforms and would not be able to replicate the client experience elsewhere. Let me tell ya, it’s better on the outside! It is extremely powerful and respected by clients when you tell them you are independent and no longer employed by these guys. The public may forget and begin investing again with the big guys, but smart money will admire you for staying true to a conviction to steer clear of idiots who almost ruined our whole banking system. While tough, we had a very positive response from clients who understand why you turned down a huge signing bonus - you make it up overtime if you are good by higher payout and happiness! (10%-15% per yr. over 10 yrs…) Again, the negative sentiment about wires will disapate and you’ll lose your window as time heals the reputations of these behemoth arrogant institutions who constantly try to convince you you that you need them to run a practice. You don’t. You need some balls and some drive to bust a move and chart own your own destinty. Just look for a post of “independents wanting to go wire” - you aint gonna find that one! Nobody wants to go back to these guys. Hey, if you can’t beat 'em, join 'em. Become an OWNER amd recruit your own advisors who probably will follow a leader paving the way for more effeciency, nimbleness and elimination of layers of nonsense. There are way too many regional consultants, product specialist, complex managers, etc… making way too much money off the backs of you and every other hard working FA. You are on the front lines and have had to account for the shameful behavior of senior management while at the wires. Retention $ is the cruelest tease of 'em all - it ait free money! Read the fine print. You are selling your soul and your rights to your client base. Every smart branch manager will say otherwise, but agreements are totally slanted to the big guys. Yeah, it was scary as hell to leave but trust yourself - your clients will applaud you for having the courage and insight to go as long as you can assure them that the custodian is secure and reputable. You’ll definitely have more respect from cpa’s and lawyers you know. Be organized, follow protocol, and don’t be afraid. I admit fear kept me at my old firm for at least 2 yrs. longer than I should have stayed. Best thing I ever did and I am getting referrals and new business and back in less than half a yr. And I looked at every major firm, their back end deals, their agreements, and platforms. In the end the decision was clear - even though the $ was so tempting! My spouse said “even if you get a great deal, you’re just gonna say how much you hate these guys in 3 yrs. so why just go to another wire.” Sometimes she’s right!

I love reading all these post about all the FA’s who are still tolertaing all the madness about retention, payouts, managers, etc…

My branch manager always acted like the guys who went independent were a bunch of $300k or less FAs who wanted to work from home in their pajamas. Really? ha ha ha ha ha… The larger your book, the better the payouts as your costs are fixed. But, don’t under estimate your costs for payroll, office space (two largest expenses) + office supplies, telecom, software, payroll service, lawyer, etc… Welcome to the world of ownership! No regrets here. It’s awesome.

Maybe I’ll even work from home in my pj’s tomorrow just so my silly manager can be 1/2 right!

Good luck to you!   

Jan 15, 2010 7:02 am

Well stated LogansRun!   Going Independent does require a lot more responsability.  You have two options here:  A) Semi-Independent [Traditional BD Model] or the highest level of Entrepreneurship is being RIA Independent or some mix thereof (Hybrid Advisor).

  Schwab I believe does a good job defining it all when your with a B/D -- "controlled independence."  For example, some Independent B/D's have house rules which prohibit working out of one's home (PJ's or not) while in the RIA world your free to choose where you want to spend your office time.   It's all a matter of comfort.  No one business model is superior to the other -- it's a matter of preference and comfort for the Advisor.  Considering I represent all sides of the coin ranging from W-2 Advisor, Traditional Ind Reg Rep, Hybrid Advisor, RIA and even assiting those Advisors interested in forming their own B/D -- the best advice to you is to take your time, prepare the proforma statements and remember that this will always be a people business and choose a model in which your enthusiasm in working with people will shine the brightest.   I've developed some Proforma's over the years for Advisors and would be happy to provide you NY Guy.  Always willing to help any member on this forum and best wishes to you and your family as you consider the many options available to you.   Fred
Jan 15, 2010 7:14 am

Not much more to add then what Logan and Fred have already said. I made the jump less than 6 months ago and was feeling many of the fears you are going through right now. If you want, PM me and I’ll tell you my story. Good Luck!

Jan 15, 2010 7:00 pm

Logan you need to add paragraph breaks. Probably a good post but it got way too long.

Jan 15, 2010 8:40 pm

LuvIndy, you are so right. But I’m not here to win an essay contest or critique from an English prof. Not being wise - Just wanted to get it all out! Guess I have a strong opinion on the matter of being independent and free from the madness! But thanks for pointing this out.

By the way, I did not spell check either. But - if your log on name is correct, then you can appreciate being independent too. Once you are on the outside, you wonder why you stayed so long…maybe you and others knew this before I did; NY Guy needs info. now and I appreciate his situation as I just went through the departure. So I tried to provide my perspective. Feel free to post yours and maybe that can aide his decision pro or con.

Jan 15, 2010 10:16 pm

I left in 2006 from a quasi-INDY world.  I already had the expenses of Indy, with all of the BS of a wire.  I agree with the long post.  It is the most liberating feeling in the world, and if it wasn’t for the 2000-2002 fiasco, I would have left then.  My expenses were 30% lower and the all digital office meant 30 hour, 4 day weeks without a dedicated assistant.  Just dropping 6, 5-drawer file cabinets from the work load gave me more quality time with family.

  I would add, don't be afraid to say "next", during your transition.  I used the prism of who would I want to invite over the house for a holiday dinner with the wife and kids?  Then I approached, and got all of them.  I sold 350 households, over a two-year period, then prepared and pursued 100.  I retained 96 of them.  Both gross and net increased significantly, and I didn't get a bunch of 1035-exchanges or anything like that.  It was merely ACATS from mf wrap and SMA that I did not have to share with a product manufacturer.  Just decide what you want foryourself, and do it....  Two things of importance:  1 - technology of the b/d you are going to and 2- the quality of the transition department .  It will be the hardest 60-90 days you ever worked since you started, but wow is it ever worth it.
Jan 15, 2010 10:49 pm

awesome posts and I didnt mind the long run on paragraph logansrun.

I REALLY appreciate all and any info and I really appreciate the offer for the private pm’s and offers of advice over the phone privately.

I’m REALLY conflicted as this is a huge change from what I’ve been doing basically my entire career.

I have time to sort this all out because for various reasons personal/business I really cant do anything until 2011 and if I make a move I want this to be the only move I have to make again.

Ideally I’d like to stay where I am because I enjoy being with my friends but my firm is pissing me off more and more and doesnt help me increase my business only hurts my business.

Thanks again for any and all advice and thoughts

Jan 16, 2010 9:45 am

RJ probably is a pretty good fit for you. Just keep in mind your actual gross payout is about 73% after ticket charges, E&O, tech charge, and advisory admin fees. This doesn’t kill the math, but no one explained that to me before I went Indy with RJ.

Outside of the math (which is as simple as it looks), going Indy is awesome. Tax benefits: My company buys my sports tickets, internet connection at home, and some other miscellaneous items (which aren’t insignificant by year end).

You can be agressive and become an S Corp and take a distribution that will not have payroll tax on it (15.3%). You can fund your own retirement plan and if you make a ton of money be super aggressive in a defined benefit plan.

The original response about buying equipment when you want it is right on as well.

Jan 16, 2010 10:07 am

Read Robert Fragrasso’s book about going independent. It takes planning, it requires some moxie, and most of all it isn’t something you can do overniight. I took a year to get all my ducks in a row. Out 3 years from Jones, without hesitation, if you have the will to be the top dog, and the ability to manage your [email protected], the rewards are well worth it.

LPL and Ray Jay are the leaders in the indy world. I chose LPL because I didn't want B/D conflicts (Ray Jay has 3-4 channels of distribution). In hindsight, I think I made the right choice becausse my practice is about 30% annuities and Ray Jay isn't as good as LPL in that area. LPL has bought smaller B/D's since I came on board and there probably isn't much difference anymore (they have multiple channels now) so I think you can't go wrong with either. Good luck and keep us posted...
Jan 16, 2010 10:36 am

Therre are terrific financial, tax and quality of life benefits associated with going independent and those, along with an ever-increasing distrust of wirehouses, drove me to open my own practice after about a year of due diligence.

  I've been independent for a litlle over a year now and am realizing a new beneifit that I never  even considered.   Respect.   You would be amazed at how many of your clients, friends, centers of influence and even family view you as an "investment salesman." They don't say so to your face, but that's how they see you. No matter how succesful you might be or how long you've been in the business, you will never shake that salesman patina while employed by a wirehouse.   Being an independent you almost immediately lose that. You become viewed as a professional investment advisor. You can sense the increased ease that clients have around you. Your referral volume heats up. People don't view you warily when they hear what you do for a living.   Even though what you do and the platform you do it on haven't changed people simply respect you and your opinons more. And they root for your success. Everyone wants a new small business to be succesful. It's the American dream afterall.