Not All 90% Payouts Are Created Equal

Wirehouse advisors who kick the tires at independent firms soon 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 independent broker-dealers.

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 direction. 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.