Financial Advisors

I’m confused with all of the different compensation terms I see here. I know it probably depends on your set up but still so much to consider. I see terms like Production, GDC, payout, etc. what does

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So I get it for the commission based such as EJ and firms where you don’t set your fees, I guess captive w-2 folks at fee based firms. Maybe a big advantage of being independent is setting my own fee and keeping 100% of it

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$50,000,000 AUM x 1% = $500k production @ our firm that's a 75% payout on the grid, so you'd take home $375k before taxes and such. Then if you sold transactionals that generated $10k in commissions, that's $10k in production so you'd get $7500 from that.

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We get a 40% payout at Jones. Whatever I generate in commissions monthly is the gross number and I get 40% of it. Easy numbers, for every 10k gross I make 4K net- taxes and everything come from that net as well

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% of the sales charge or advisory fee that goes to the advisor or broker. So some firms you’d only get a % of the advisory fee.

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I’m guessing they mean 45-50% of the gross commission/fees paid to the firm.

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I’ve never been captive so I have no understanding of that world. Completely foreign, different language

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PGR (Production Gross Revenue) includes everything (managed money, a,b,c share purchases, insurances, annuities, but not 12-b1) TGR (total gross revenues would be everything including 12-b-1 fees. Anyone know this differently ?

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Who gives 75%?

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No, I get 1%. Custodian and RIA get an additional .75%. So the smallest accounts pay a total of 1.75% annually. I can charge what I want from zero to 1.55, I chose to charge 1. I can also charge a flat rate or hourly or just give me your Spurs tickets or what ever. Bottom line I keep 100% of what I charge

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NyL1. I I understand what you are saying but I think maybe my money flows in a different direction. I use Fidelity as my custodian, they deduct the fees and send mine and the RIA share to the RIA. The RIA sends me a check for 1/12 of 1% every month. I don’t pay anything back. My RIA does have an “affiliation fee” that covers technology, compliance, E&O etc, $500 a month. But as soon as you hit $5mil in AUM that goes away. I keep 100% of the fee the I charge for my services

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Now, it could be said that of the total 1.75% I only keep 1. Maybe that is the way some reps see it??

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Right. I don’t do the picking. I determine which model is right for the client. The RIA manages all the portfolios. All ETFs so I guess if you add in the expense ratios then it is close to 2 all-in

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All that mean? I’m am IAR. Independent. I charge a fee if AUM of 1%. The RIA gets something in the area of .50 and the custodial gets around .25. There’s a grid based on account size but most pay 1.5-1.75 all in. I can change up to 1.55 but stay with the customary 1.00. I don’t get what it means when FAs here say they get a 45 or 50% payout. Can somebody please educate me?

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When I read that 40 under 40 article they all had X AUM and X production. What is production that that context? To me “production” is new assets brought in in the given time frame

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WR 1 is the the asset or the fee/commission on the asset? And is it new or cumulative? That’s where it is fuzzy. Thanks for all the replys!

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@OP - Gross Dealer Concession is going to be different at every ‘firm’ (Raymond James, Lincoln Financial, Ed Jones, Morgan Stanley, Merrill, New York Life, etc.) Some companies have attachments to the GDC grid while others are straight grid payouts as mentioned by FA1 above. I currently receive 85% payout. Ex: (using numbers above) $50m in assets, charging 1% = $500k in GDC. My ‘house’/firm get 15% ($75k for trading platform, etc) and I receive $425k as income (all figures come out of this for taxable income purposes.) Indy folks get 100% of GDC, but then pay for trading platforms, back office work, etc.

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A grid is where for every $x of production/gross/commission you earn you get $y payout. Usually there is a step up grid, which means if your x is $250k your y would be 32% but if your x is $2.5mm your y would be 45%. The x comes from every little thing the client pay you for e.g fees

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To original poster.. are you really paying 75 bips to the Ria and custodian? Does that mean you only get paid 25 bips but have a 100% payout?

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1.75% is kinda high but if you can sell your services and your clients are happy, more power to you. 👍

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@OP - if you charge 1% - GDC is what you actually take from that 1% (ex: people say 32bps, 45, 75, 85, etc.). What you’re confusing are platform fees, manager fees, custodian fees, etc. if you’re paying 75bps back to your RIA/Custodian, that pretty steep. Then again, when I see Wire houses pay people 32,35,40,45 bps - that also a steep price to pay. You just need to make sure it’s the right fit for you.

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