Ask Brad: You’ve Been Calculating Your Payout Wrong
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A common question I am asked by advisors who want to learn more about the RIA model is how do the payouts work? Is it really 100%?
I generally answer the question by saying, “Yes, it is 100%. And guess what, you have a 100% payout at your current firm as well.”
Considering I am often speaking to traditional wirehouse-type advisors and/or independent broker/dealer advisors, that response causes bewilderment.
Broker/dealers have payout grids. I am not naïve. Nor am I unaware that most firm compensation plans run 20+ pages on average, as they are loaded with all kinds of hurdles meant to reduce what flows into your pocket. But, alas, that is a topic for another day.
Why do I say that a broker/dealer advisor has a 100% payout?
To understand, let's first look at how “payouts” work in the RIA model.
If you start your own RIA, you keep 100% of the advisory fees you charge your clients. This is logistically handled by your custodian(s) debiting your clients’ fees from their accounts at the agreed-upon intervals and fee levels. Those fees are remitted to you, as the RIA.
While often called a “100% payout,” it is not a payout at all.