Wirehouse advisors who kick the tires at independent firms oon discover that most independent firms offer payouts of 90% or
pretty close to it. Even independent advisors producing at modest levels pocket at
least 80% of their commissions.
While the payouts of prospective independent firms may appear almost
identical, there can be a wide income
disparity between advisors at two firms
with roughly equivalent payouts.
In one case I'm aware of, for instance,
an advisor's annual charges at a major indie firm were 220% higher than
he would have paid at a smaller boutique group — a difference of more than
$8,000 per year. Unlike grid payouts at
wirehouse and regional firms, there are
three components to advisor payouts at
First, there's the official firm payout —
in most cases around 90%. Independent
advisors also pay ticket charges on trades
and/or fees to custody assets. They also
are charged monthly fees for items like
compliance and technology.
It's only after an advisor has carefully
scrutinized all these charges and deducted
them from the firm's official payout that he
can get a true sense of his actual payout at an
independent firm. This can become a basis
of comparison among prospective firms.
Advisors, of course, should choose
firms based on “big picture” criteria like
platform and technology capabilities,
financial strength and strategic direc-
tion. Nonetheless, like all businessmen,
advisors who are exploring independence
need to understand their costs.
Costs & More Costs
Let's review some of the expenses for which
independent advisors are responsible.
1. Ticket Charges. Advisors are
charged a fee each time they do transactional business. This includes trades
of stocks, bonds, mutual funds, alternatives and other products. These charges
can vary widely among firms.
One firm can charge a flat $20 fee for
stock trades, while another may add in
cents per share. Yet another firm charges
$28 per trade.
Some firms reduce their payouts on transactional business to 75% or 80%. Charges
on fixed income trades can differ as well.
2. Custody fees. Custodians charge
fees based on the amount of assets that
advisors hold with them. RIA custodians
can offer advisors a choice of pay-as-you-go ticket charges on portfolios that
they manage or ongoing assets-under-management (AUM) pricing.
3. Monthly Fees. Independent bro-
ker-dealers charge advisors fees for a host
of services that they provide. These include
errors-and-omissions (or E&O) liability
insurance, technology and compliance.
Fees for services may be specifically
delineated by some firms, while others
group them under a general category
like "association fees." This is the area
in which the charges of broker-dealers
may differ the most.
Cheaper isn't necessarily better, and
advisors need to assess what they are
getting for these monthly charges. It's
helpful for advisors to ask a prospective
firm to provide them with an itemized
list of monthly charges.
Superior technology, for example, may
be well worth the added costs. Plus, advisors may prefer to have their compliance
handled by the home office as opposed
to engaging an OSJ practice within the
new firm. Each firm has its own business
models and cost structure.
Advisors who want to get a handle on
their costs at both their existing and prospective broker-dealer should do careful
analysis of the figures. Focusing solely on
the firm's official payout doesn't provide
them with sufficient information.
FAs need to thoroughly review ticket
charges and custody fees. Also, garnering
specific information on monthly charges
and the exactly what services are provided
by broker-dealers in return is critical.
Mark Elweig is an executive recruiter who has
worked for three decades with advisors at
wirehouse, regional and independent firms.
Not All 90% Payouts Are Created Equally
By MARK ELZWEIG