10 Great Reasons NOT To Take The Bait

10 Great Reasons NOT To Take The Bait:

  • The grass isn’t really greener, it’s just astro-turf. Whomever is promising you the moon is being compensated to bring you over, when their paycheck is on the line they can become very compelling.
  • Taxes will take ninety-percent of your upfront, guaranteed.
    • You’re a financial advisor, right? Once you drill down, you wouldn’t advise your clients to do this. Or better yet,
      • Consult a CPA who has experience with taxes on an EFL. (Remember, it’s all taxed as ordinary income on top of your production and on top of AMT)
      • Ask the soliciting B/D for an honest hypothetical paycheck based on 60%, 80% and 100% over years 1, 2 & 3. (Get it in writing.)
  • You will naturally lose some clients – not all will come at first, but you can eventually rebuild
      • So why make a lateral move in the first place? Also read #2 again
  • Ninety-percent of all recruits fail to hit the ‘back end’ of their deal. That leaves you with the front-end and a 10 year contract.
    • Think about your new situation. Only sixty-percent of clients show up over the first 18 months. However, you’re paying taxes on the EFL and have 40% less production to show for it, so the paycheck is all zeros.
    • This gets worse… as years 3, 4 & 5 tick on, you keep eating into the EFL to fund your life-style. Slowly your production gets better but your EFL disappears; now you’re deep into you deal. They own you.
    • If the market dips or you hit a production bump, where does your income come from? (remember, much of your current production is still paying the taxes on the principle and interest of your EFL)
    • Dreaded loop-tape of despair, Another B/D calls, promises you the moon (amnesia kicks in) and you see the answer to all of your troubles.  The cycle starts again…
  • You build NO equity in your business. And a sunset deal is insulting. (Merrill’s four year sunset is something like 40/40/30/20 TO GRID). Do the math: if you’re a $600k producer, you’re at a 40% grid. Forty percent of 40% is 16% = $96K… The total compensation on this example is about 50% of one year’s production paid over 4 years and taxed as ordinary income.
    • Indie RIA equity is closer to $1.2MM… all taxed as long-term capital gains… hello, are you getting this?
  • The $1MM EFL looks like a windfall. It’s not. You should reconsider staying put or becoming an Indie RIA (double the cash flow and own the equity in your book, build your business, leave a legacy)
  • As a W2 employee you are in one of the highest tax brackets on earth with almost zero deductions.
  • You have NO personal BRAND without the mothership’s disclaimer. (remember, they own you)
  • You must sell only approved house products
    • ALL product vendors must pay for shelf space, this reduces returns and increases expenses that you as an advisor don’t share in (like unbelievable ticket charges, broker ‘re-allowance’, money market yields of 2 basis points while they take 60bps in expenses ratio, etc.)
  • Your firm trades against you, in front of you and your clients on every single transaction.
    • You can’t trade away… you can’t help your client get better pricing, terms or services by making the street compete for the business.

Do the research. Know your options. The Independent RIA channel is growing because smart people like you who do their homework are making a logical (not emotional) decision.

Paul Spitzer is founder of Advanced Practice Advisors in Del Mar, CA., A Platform Service Provider for Independent RIAs.   (Technology, Compliance, E&O and everything else)

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