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jdavid83 View Drop Down
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    Posted: Oct/13/2016 at 1:59pm
Hello all -

New member here.  In the business for several years at a regional firm in their independent channel.  Have been courted heavily by another regional recently to become the successor for another advisor who is approaching retirement age and has a decent-sized book.  I've received an offer from the new firm and have no idea if it's a good deal and what I should counter back with.  

One downside to consider, is that I would go from being an independent contractor to an employee of the new firm.  I have never been through a firm change and can't think of anyone to seek advice from.  Please help.  
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Fake Brady!

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Post Options Post Options   Thanks (0) Thanks(0)   Quote B24 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 2:05pm
Gotta give some more specifics.

What firm are you leaving, and where are you going. How big of a book, how much would you be bringing, what is the deal they are offering, etc.
"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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I'm a little hesitant to put too much information here.  But basically I have about $40MM AUM and do $250k/year.  My current payout is about 85% but that obviously means I pay all overhead which pencils out to only about $45k/year.

The new deal would be. 50% payout for 2 years, then drops to 42%.  $60k upfront bonus (really a loan). With a written purchase/sale agreement on the older advisor's book of $90MM that must be initiated in no longer than 5 years or else half of his book is assigned to me.  Any new business, goes to a joint FA number and split 50/50 - which honestly he's a much more connected and better salesman than I am - so I'm not too concerned about that.  He's very commission heavy, while I'm into fee-based.  Which is a main reason they want to bring me on, to help convert his book to more fee-oriented business.  I'll also get a cut of the fee converted accounts - I don't know how much yet, waiting to hear back on that.   

I'd go from being 1099 to w2 which I can see some of the pros and cons but I'm sure I'm missing some. 

I've estimated I should be able to bring about $30MM with me no problem.  
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Post Options Post Options   Thanks (0) Thanks(0)   Quote B24 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 2:57pm
I'm a little confused. You'll get a "cut" of the fee-converted accounts? Why wouldn't you get 100% of those accounts? (assuming you are referring to AFTER you purchase his book).

So it sounds like your income may actually drop until you buy the book? You would bring over 30mm at roughly $185K gross, which means net $95K year one and two, then ~80K after that. Versus your net right now of around $165K.

I'm not sure how this works out well for you, except that you can buy the book within 5 years. What is the multiple that you buy it for? And is it an earn-out, or based on CURRENT revenues (in other words, if you convert to fees, do you have to pay him a portion of THAT revenue?).

Still not enough details.


"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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Post Options Post Options   Thanks (0) Thanks(0)   Quote PEACH_cm Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 2:58pm
So cut your pay to partner with someone whose book is not much bigger than yours that is not the type of business you currently do. Not to mention being more of a slave than you already are. I would keep doing what you are doing and cut your overhead if I were you.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Hacksaw Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 3:03pm
Originally posted by PEACH_cm PEACH_cm wrote:

So cut your pay to partner with someone whose book is not much bigger than yours that is not the type of business you currently do. Not to mention being more of a slave than you already are. I would keep doing what you are doing and cut your overhead if I were you.

Or why not approach the older guy about joining you, and offering him a better sunset than the current b/d?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote jdavid83 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 3:17pm
Sorry, I should have been more specific. The cut would be of revenue generated from new fee-based accounts.  This may be moot now, as the BM just called and suggested that we could just fold the two books together and each earn a certain percentage on the net revenue (e.g. he'd get 2/3 and I'd get 1/3).  

The old advisor is only generating 0.65%/year on his book, but through converting to fee-based, we should be able to get that up to around 0.85-1% - increasing the pie, we'd both be drawing from. This needs to happen anyway with his IRAs as part of the DOL rule.  

After 5 years it's a 4 year earn out (60,50,40,30) on all of his original clients. Obviously I wouldn't have to buy my clients from him.  

You are correct, my income would take a hit for a few years.  But I would gain full office staff, benefits, etc, where as currently I work alone.  
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Post Options Post Options   Thanks (0) Thanks(0)   Quote jdavid83 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 3:20pm
I've actually considered this, it would be the ideal scenario.  But it's dangerous and could backfire.  I think he's comfortable and the odds are low he'd consider a B/D change.  

Reply fail to HackSaw


Edited by jdavid83 - Oct/13/2016 at 3:22pm
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Originally posted by jdavid83 jdavid83 wrote:

Sorry, I should have been more specific. The cut would be of revenue generated from new fee-based accounts.  This may be moot now, as the BM just called and suggested that we could just fold the two books together and each earn a certain percentage on the net revenue (e.g. he'd get 2/3 and I'd get 1/3).  

The old advisor is only generating 0.65%/year on his book, but through converting to fee-based, we should be able to get that up to around 0.85-1% - increasing the pie, we'd both be drawing from. This needs to happen anyway with his IRAs as part of the DOL rule.  

After 5 years it's a 4 year earn out (60,50,40,30) on all of his original clients. Obviously I wouldn't have to buy my clients from him.  

You are correct, my income would take a hit for a few years.  But I would gain full office staff, benefits, etc, where as currently I work alone.  

So I guess the three big downsides to consider:

1. You are back to being a slave
2. Your income would take a hit for a few years
3. There is risk that the whole thing blows up somehow and you are left with nothing and no job and your wife leaves you.

Joking aside, point #3 is a real consideration. What if the new firm fires you for ANY reason? You lose your book, his book, and your business.

I can't see the original post, but are you going to a captive firm (ie. wirehouse-type firm), or is it a large branch office of an indy firm?
"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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Do you do much insurance business?
"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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Originally posted by jdavid83 jdavid83 wrote:

Sorry, I should have been more specific. The cut would be of revenue generated from new fee-based accounts.  This may be moot now, as the BM just called and suggested that we could just fold the two books together and each earn a certain percentage on the net revenue (e.g. he'd get 2/3 and I'd get 1/3).  

The old advisor is only generating 0.65%/year on his book, but through converting to fee-based, we should be able to get that up to around 0.85-1% - increasing the pie, we'd both be drawing from. This needs to happen anyway with his IRAs as part of the DOL rule.  

After 5 years it's a 4 year earn out (60,50,40,30) on all of his original clients. Obviously I wouldn't have to buy my clients from him.  

You are correct, my income would take a hit for a few years.  But I would gain full office staff, benefits, etc, where as currently I work alone.  

As the resident grammar nazi around here, it is "mute".


The real question is how the hell are you burning through $167,000 of overhead on a book that size?

$45,000 for one full time support person and costs and $24,000 of rent per year means you are wasting $98,500 somewhere else.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote B24 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 3:43pm
Originally posted by luvindy luvindy wrote:

Originally posted by jdavid83 jdavid83 wrote:

Sorry, I should have been more specific. The cut would be of revenue generated from new fee-based accounts.  This may be moot now, as the BM just called and suggested that we could just fold the two books together and each earn a certain percentage on the net revenue (e.g. he'd get 2/3 and I'd get 1/3).  

The old advisor is only generating 0.65%/year on his book, but through converting to fee-based, we should be able to get that up to around 0.85-1% - increasing the pie, we'd both be drawing from. This needs to happen anyway with his IRAs as part of the DOL rule.  

After 5 years it's a 4 year earn out (60,50,40,30) on all of his original clients. Obviously I wouldn't have to buy my clients from him.  

You are correct, my income would take a hit for a few years.  But I would gain full office staff, benefits, etc, where as currently I work alone.  

As the resident grammar nazi around here, it is "mute".


The real question is how the hell are you burning through $167,000 of overhead on a book that size?

$45,000 for one full time support person and costs and $24,000 of rent per year means you are wasting $98,500 somewhere else.



Wait, I read it as his OVERHEAD pencils out to 45K a year. Which, since he said he works solo, would make perfect sense.
"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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It's a small office (2 advisors, 2 support staff) of a small-ish regional firm - not big on the east coast but they are a conservative firm, good culture.   They view the book as belonging to the advisor. 

You're right, the big factor is money.  Which is why I'm trying to determine if 50% for two years is a respectable offer.  And what would be a reasonable counter offer without them telling me to take a hike? I want to try and maximize my earnings and not leave anything on the table.  

Luckily no wife for me! 



Edited by jdavid83 - Oct/14/2016 at 2:16pm
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Hello grammar nazi, it is indeed "moot", unless it is a quiet point possibly? And $45k is my overhead.  
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Post Options Post Options   Thanks (0) Thanks(0)   Quote B24 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 3:50pm
Originally posted by jdavid83 jdavid83 wrote:

It's a small office (2 advisors, 2 support staff) of a small-ish regional firm..da davidson - not big on the east coast but they are a conservative firm, good culture.   They view the book as belonging to the advisor. 

You're right, the big factor is money.  Which is why I'm trying to determine if 50% for two years is a respectable offer.  And what would be a reasonable counter offer without them telling me to take a hike? I want to try and maximize my earnings and not leave anything on the table.  

Luckily no wife for me! 


Have you explained to them what your current net income is?

I think a reasonable offer, considering what they are offering you (a big fucking book), would be enough to keep you whole from an income perspective until you buy the book. Not sure how you would pencil that all out, but it has to make sense for THEM as well as for you.
"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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This is correct. 
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And I don't do much insurance.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote B24 Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 3:53pm
So what guarantee do you have that they won't split up the book or sell it to another advisor in the office?
"I am moving June 2018" - Chief, 08/03/2016

"If Bellicheat pulls that rabbit out of his a$$ with this kid at quarterback, I'll personally kiss his ring." - Unknown, 09/20/2016
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I suppose that is a possibility but I do think their intentions are genuine.  They've got 2 advisors pushing 70 years old in small town America. I'm in my early 30's with enough seasoning in the business that there really isn't anyone else in the area that would be a better choice.  They need someone to ensure the continuity of the branch or they may lose it in the coming years (no buyouts for the older guys).  There's also a chance the 2nd guy's book would need a home if they can't find a successor there - also around $85MM.  I won't bank on that but they've also mentioned that they see in the future just having one advisor surrounded by lots of support staff.  
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Post Options Post Options   Thanks (0) Thanks(0)   Quote kabushiki Quote  Post ReplyReply Direct Link To This Post Posted: Oct/13/2016 at 4:44pm
So, if you are generating $250k T12 on $40MM AUM, then your only getting 0.625% return on your book.  Or are you generating $347k T12, getting an 85% payout, paying $45k in expenses and taking home $250k/year?  That would be 0.8875% return on your current book.



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