Intro
Corey: hey everyone corey whalen here managing director of bridgemark strategy is a firm that’s helped over a thousand financial advisors objectively explore the broker dealer and ria marketplace and help them find the firm with the best combination of feel fit and financials for them and their clients
The True Net Payout Question
Corey: one of the first questions i get when i’m working with a client when they’re exploring independence is what is my actual payout going to be my true net payout i get phone calls all the time saying i’m going to get a 90 payout even 100 payout what is my true net going to be and on average the average financial advisor is netting somewhere between 60 and 70 of their trailing 12 gross revenue when they open up their own practice
Corey: i know 10 percentage points between 60 and 70 is a really big gap but it really depends on a few aspects of your business and also the firm that you affiliate with
The Four Main Types Of Charges
Corey: so there’s four different main types of charges when you open up your own business
Grid Payout
Corey: the first one is the actual grid payout so for illustrated purposes we’ll work with a million dollar trailing 12 revenue producer the average grid rate is going to be somewhere in between 90 and 95 so with them for a million dollars in revenue the firm is gonna take anywhere between a hundred thousand and fifty 000 right off of the top to be affiliated with the firm
Fixed Costs
Corey: the second set of costs is fixed costs it’s things such as errors in emissions insurance technology subscriptions marketing costs finra and sipc fees and affiliation fees of the broker deal are typically those are going to add up to about 10 000 per year per advisor
Administrative Fees + Platform Fees
Corey: the next two costs are by far the most too expensive costs out there when opening up your own business the first one is administrative fees on fee based accounts so once again assuming a million dollar producer if you’re doing all discretionary fee based business an administrative fee is a basis point charge in order to access the fee based platforms at an independent broker dealer so typically those range anywhere between three basis points and 25 basis points so once again on a million dollars in revenue you’re going to be paying out of pocket somewhere between 30 000 and 250 000 depending on the firm that you affiliate with and platform fees
Corey: so as you can see there from an economic standpoint it really makes a difference which firm you align yourself with uh
Local Costs
Corey: and the fourth cost is your local costs those are the costs such as office space benefits salaries for for staff desks chairs so those can all be very valid variable you know depending on what type of business that you run
Recommendation
Corey: one recommendation that i would give is not focusing on the payout too much in the beginning when you’re having conversations with these firms a lot of times on the initial phone calls financial advisors will get in the weeds understanding the payout the platform fees the ticket charges and they really ignore the culture of the firm the actual fit and the capabilities and how well the firm actually complements them in their business
Ask For A Pro Forma
Corey: with any firm that you speak with ask for something called a pro forma a pro form is basically a snapshot of your business and what that revenue would look like on the prospective firms platform and it’ll detail the four layers of cost that we talked about and what your estimated net payout will be at the end of the day if you decide to open up your own business with that firm
Wrap-up
Corey: if anyone has any questions on the cost of independence or independent broker dealers in general i would be more than happy to have a conversation thanks so much
