The economics of affiliation

Transition

The economics of affiliation

Determining the firms and models that are best suited to your interests and aspirations can be complicated, but it’s worth taking a look at the economics while you’re at it.

So much goes into choosing a firm to call your professional home. There’s culture to consider, client support, pay. Determining the firms and models that are best suited to your interests and aspirations can be complicated, but it’s worth taking a look at the economics while you’re at it. Advisors should fully understand the costs and benefits associated with each option.

For example, wirehouses typically offer lower payouts than smaller firms. The reverse is true when it comes to upfront transition packages: Smaller broker/dealers usually cannot compete in terms of cash. Instead, they may offer accelerated payouts and some type of equity component.

To recruit and reward top advisors, some companies go beyond their published payout grids and award bonuses to their highest producers. For instance, independent advisors who affiliate with Raymond James can potentially earn 100% payout after bonuses.

If you’re considering going independent, you may want to consider the costs – in terms of both time and effort – you may incur. Will you want to take on administrative responsibilities yourself – such as managing the lease on office space, facilities maintenance, filing quarterly taxes, accounting, payroll, hiring branch associates, and recruiting? Or would you prefer to delegate those tasks to one or more employees? Many larger independents also have relationships with firms, often through professional employer organizations (PEOs), that provide administrative, payroll and other services on a contract basis that may reduce your responsibilities and time commitment.

Just as payouts differ from firm to firm and model to model, so do the resources that broker/dealers offer. So you’ll have to weigh the tradeoffs. For example, your payout may be lower if you choose the employee model, but your firm typically will absorb the costs you need to get started. RIAs and independent contractors typically pay for the resources they need directly. The decision is ultimately up to you. Just be sure to get all the facts first. 



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