Case for Starting or Joining Final Version for Online 081709
Transcript of Case for Starting or Joining Final Version for Online 081709
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 1/34
a case for starting orjoining a registered investment
advisory (ria) firm
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 2/34
This Reprt was prce by Charles Schwab & C, Ic. (“Schwab”) a is itee slely
r ivestmet pressials. The Reprt is itee r geeral irmatial prpses ly
a is t itee t prvie acial, ivestmet, reglatry cmpliace, legal r tax avice,
a the irmati is t tailre t the particlar circmstaces ay reaer the Reprt
r their rm. I aiti t the srces te, the Reprt relies irmati prvie t
Schwab by the avisry rms a ivestmet pressials that participate i Schwab’s
research a iterviews. Schwab i t iepeetly veriy that irmati a Schwab
makes represetatis abt the accracy the irmati i the Reprt. I ddii, h
ri d ri h i ri d r did i h Rr
b rri hr wih iir ir r h ri r r ih bi.
Ay meti i the Reprt prcts, services r prcesses create r ere by aye
ther tha Schwab is t, a shl t, be cstre as a recmmeati, ersemet
r spsrship by Schwab. Y mst ecie whether t prchase r implemet these
prcts, services a prcesses a their apprpriateess r y r yr sitati.
This Reprt is t itee r se by ivestrs i evalatig r selectig a ivestmet
avisr r therwise. The Reprt relates slely t certai bsiess eterprise maagemet
practices the participatig iepeet ivestmet avisry rms. The Reprt a
Schwab’s research i t examie r veriy the ivestmet perrmace a cliet servicelevels thse rms. This Reprt is t a recmmeati r ersemet , reerral t,
r slicitati behal ay ivestmet avisr, whether r t ame r escribe i the
Reprt. Ivestmet avisry rms ame a escribe i this Reprt are iepeet a
t aliate with Schwab, a their emplyees a agets, iclig iivials ame i the
Reprt, are t emplyees, agets r represetatives Schwab.
Schwab Avisr Services (rmerly Schwab Istittial) is a bsiess segmet The Charles
Schwab Crprati servig iepeet ivestmet avisrs a icles the csty,
traig a spprt services Charles Schwab & C., member SIPC.
A CAse or stArting or Joining A registered investment Advisory irm
ImpoRtant DIsclosuRe
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 3/34
Bd dbk r hdrd dir idri ri r
jii Rird I adir (RIa) r, i dir
r ki h d qi h :
Wh’ h b dir d r i?•
Hw I “r-iiz” r rk-rd ?•
Hw wd I r wih h id d irrr i •
rr ir?
thi r r h i ib dir wh
b idri h r hir rr brkr-dr
ir. I i:
“n” i i h RIa d rd •
i hbrid r bk/brkr ir
ai hk (rib ) rd ri RIa•
th r h RIa di i rrd ri, rd,•
h, ri d ri
R w fw ri bw RIa di•
d brkr
oi ib dir/ bd ri hir w r•
Fid r r wh k
idd—d r r h wh did.
executIve summaRy
2
IntRoDuctIon
Momentum Shit to RIAs
6
aDvIsoR moDels to consIDeR
The Spectrum o Independence
Callan Capital: Taking Control o Your Destiny
What Is the Role o the RIA Custodian?
12
tHe economIcs oF InDepenDence
A Reality Check
Increased Earning Potential as an RIA
Comparing a Forgivable Loan With Starting an
RIA Firm
20
some Reasons WHy aDvIsoRs
cHoose tHe RIa moDel
Taking Control o Your SuccessManaging Conficts o Interest
RIA Firms Are Growing Faster
23
movIng FoRWaRD WItH InDepenDence
Joining an RIA Firm
Burns Wealth Management: Sharing Control o
Your Destiny
Start-Up Costs
27
ResouRces to ease tHe tRansItIon
Advisor Conversion Services
28
conclusIon
About Schwab Advisor Services
29
appenDIx: enDnotes
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 4/34
A CAse or stArting or Joining A registered investment Advisory irm
2
th bi ridi i di h rdi hd i r r. Wih
f i rrd b r r rid fi ir d di rk
dii,1 iri br i dir d r-r i’ r.2
a dir dir h r h ri .
IntRoDuctIon
Thse wh leave a bak/brkerage rm, wirehse r iepeet brker-ealer t
becme a Registere Ivestmet Avisr (RIA) te wat t imprve the service prvie
t cliets, expa their avice a prct erigs, a icrease their earigs
ptetial. Sme may be i trasiti-plaig me tryig t etermie the best way t
maximize the sale their revee stream at a later pit i their career. Still thers may
be itereste i evlvig their ee-base practice t ee-ly ver time a believe the
best chael r this evlti is tsie the bak/brkerage chael.
Cliets avisrs are te bsiess wers wh appreciate ig bsiess with ther
bsiess wers. Base eeback rm hres avisrs wh i recet years
starte their w rms r jie existig rms cstyig their assets with Schwab
Avisr Services,3 it’s t cmm r cliets t resp “What tk y s lg?”
whe learig that their avisr starte r jie a iepeet rm. What’s mre, a
verwhelmig 98 percet iepeet RIAs say i they ha t it agai, they wl
make the same ecisi t g iepeet.4
“Ater 16 years i the wirehse evirmet, I wate trasparecy. Whe I was with my
prir rm, we se t start every cliet meetig with a explaati why we were’t the
same as the big-ame wirehse r bsiess car—we were always tryig t ieretiate
rselves rm the traitial brker. I it rereshig that tay we ca talk abt r
btiqe iepeet mel. We ca talk abt cstmizati. We ca talk abt the service
mel a why we wet w this path i the rst place.”
—John Krambeer, President and CEO, Camden Capital Management
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 5/34
InTRoduCTIon
m shi RIa
The recet acial crisis a massive rm
csliatis have prmpte ivestrs t
qesti avisrs abt the stability
majr Wall Street rms that are hlig
their assets.5
While this crisis cecele may previsly happy avisrs t
actively research becmig iepeet
avisrs, the stage bega t be set r this
exs early a ecae ag. Sice the
early 2000s, Schwab Avisr Services
believes, may traitial wirehses may
have itetially create a ertile
evirmet r the ext geerati
iepeet avisrs.
t bidi
T begi with, may wirehses trasitie
rm simply accmmatig avisrs wh
wate t team p, t ecragig them t
parter i rer t better serve cliets a
esre ctiity whe a team member
leaves the rm.6 I this evirmet, a lly
ctial a cmpatible team that
becmes happy with its rm wiels a
sigicat amt leverage. Avisrs wh
have brae their team withi the cstrct
the wirehse have alreay create a
btiqe atmsphere similar t iepeet
practices, a are similar i atre t the
RIA mel.7
“Certai iivials a teams have evlve
their w btiqe bsiess mel. They
ee a mre cse slti.”
—George Dunn, Managing Director
Convergent Wealth Advisors
Institutional Group
a hi -bd bi
Traitial wirehses have als ecrage
the grwth ee-base accts i the past
ecae i rer t aitize revee fws
a maage sharehler expectatis rm
qarter t qarter. Fr example, the 2007
Focus on Growth bs prgram prvie
Merrill Lych acial csltats a
icetive t grw their ee-base bsiess.8
Avisrs with 80 percet t 100 percet
ee-base cliet assets er maagemet
are icreasigly realizig that “haircts”
these assets by wirehses ca be avie
by gig iepeet. This emphasis
ee-base accts erscres a
icreasig awareess hw RIA cstias
are cmpesate (see page 11). Thse
avisrs with a mre balace mix ee
a cmmissi bsiess may te vale
the versight a spprt a iepeet
brker-ealer a gig basis.
cidi
Cmbiatis majr baks a brkerages
i 2008 a 2009 have’t ispire a sese
stability r cliets r avisrs.9 Mergig
cltres, itegratig prcts/platrms a
recig expeses may heighte certaity.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 6/34
4
A CAse or stArting or Joining A registered investment Advisory irm
Avisrs may eel iserachise by the
reteti packages they are ere (r t
ere), the treatmet team members i
reteti package calclatis, the chages
i leaership, a the rmre r actal
cmpesati pla chages. These avisrs
may be challegig their rms t wrk t
retai them by actively a smetimes
pely prsig ther ptis like gig
iepeet.10 ultimately, may avisrs are
t i ctrl their r their cliets’ estiies.
a rii i
The sb-prime a creit crises ctie
t be a majr srce cliet a avisr
rstrati. As sch, may avisrs a
teams have csiere a resh start byacceptig a rgivable la er rm a
cmpetig rm.11 others, wh have lke
carelly at the math a weighe the
mlti-year cmmitmet reqire as part
the la (see Exhibit 8: Cmparig a
Frgivable La With Startig a RIA Firm
p. 18), have pte t csier metizig
their revee by startig a RIA istea.
With a icrease i isgrtle avisrs a
with mre cservative bakig cltresicreasigly ifecig recritig plicy,
there is a grwig schl thght that
rgivable la amts will tre w rm
the heights reache i 2007 a 2008.12
o the ther ha, a emergig emphasis
r thse seekig iepeece is bilig
eqity i a bsiess witht epeig
clleages with ieret icetives.13
“o Agst 8, 2008, everye i The Crage
Grp let the saety et wrkig r a large,
bak-we, iteratial wealth maagemet
rm a mve several blcks w the street
t pe r rs as Crage Parters, LLC.
We let witht beig able t tiy r cliets
i avace, r ew space was t reay, the
phes were t wrkig prperly, the ritre
ha t arrive, r rmer rm was t helpl
a, a mth later, the eqity markets bega
the histric ‘waterall evet.’ We qickly leare
that a 80-hr wrkweek wl be a
vacati—a hw t srvive eergy bars
a bttle water. Five mths later, r cliets
appreciate hw we came t r ecisi a
ersta why r mve t iepeece
beets them. We have bee verwhelme by
the icreible armatis r cliets have
give s a are eve mre etermie i r
eicati t serve them. I am s please a
thakl t reprt that early all r cliets,
iclig all r majr cliets, have llwe
s t Crage Parters, which is eve larger
tha it was whe we eclare iepeece.”
—Ralph Courage, Managing Member
Courage Partners, LLC
The experiece Ralph Crage a Crage Parters
may t be represetative the experiece thers
a is t a garatee tre perrmace r sccess.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 7/34
InTRoduCTIon
0
2005 2006 2007 2008
$3.3
$6.9
$9.2
$13.2
Source: Schwab Advisor Services
2
4
6
8
10
12
$14
C A G R
’ 0 5 – ’
0 8 : 5 8
p e r c e
n t
EXHIBIT 1: SCHWAB ADVISOR SERVICES NET NEW
ASSETS FROM ADVISORS TURNING INDEPENDENT
Assets under management (AUM in billions)cr i hiki
Thsas sccessl ee-base teams
a iivials are w i a psiti t
csier startig r jiig RIAs. The
Brker Prtcl create i 2004 by sme
the majr wirehses attempts t avi
cstly lawsits a Temprary Restraiig
orers (TRos) agaist epartig acial
avisrs. I a avisr resigs, takes
limite cliet irmati tlie i the
Prtcl a jis ather member rm,
the Prtcl may shiel them rm a
lawsit r TRo. Sice its icepti, may
RIAs have als jie the Prtcl,
eablig them t take avatage the
prtecti it rigially are wirehses.
shwb adir sri’ 58 r d rwh
r (cagR) i w r dir wh rb idd i hr rfi h rd
ri idd. ehibi 1 (b) rk dir/
i bk/brkr r r idd brkr-dr
r r ji RIa.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 8/34
A CAse or stArting or Joining A registered investment Advisory irm
6
aDvIsoR moDelsto consIDeR
th sr Idd
I y wat t g iepeet, y have three basic mels rm which t chse:
• Pu riA: Start r ji a 100 percet ee-base RIA, sig iepeet RIA cstias.
•op hb l: Start r ji a ee-base RIA while aliatig with a iepeet
brker-ealer r trasacti bsiess, iclig -gig cmmissis a trailers.
•Cap hb l: Aliate with a brker-ealer with a crprate RIA a restrictis
RIA cstia access.
The chice mels typically epes the type revees the iepeet avisr
ears: Fee-ly avisrs may the pre RIA mel the mst attractive. Avisrs wh
chse t retai sme r all their cmmissis sally aliate with a brker-ealer i
what may escribe as a hybrid mel. Schwab Avisr Services prvies cstial services
t abt 1,500 RIAs that have pricipals r ther persel wh have liceses with
iepeet brker-ealers.
I d
Sme iepeet brker-ealers reqire assciate brker represetatives t se their
crprate RIA r therwise restrict them rm accessig iepeet csty a traig
platrms r their ee-base bsiess like thse ere by Schwab Avisr Services. other
iepeet brker-ealers, wh wrk with RIA cstias, have embrace a mlti-aliati
mel that allws their assciate brkers’ rms t set p their w RIAs a chse the
best platrm r their cliets.14
Still, it is becmig mre cmm r iivials a teams t ji as emplyees r rge
a strategic alliace with a existig iepeet RIA rather tha start their w. I act,
a icreasig mber RIAs are hgry t grw by aig avisrs a/r teams, eitherthrgh recritmet r acqisiti.15
Firms specializig i wership trasactis er a attractive pti as well r thse
seekig specic trasiti assistace a varis egrees peratial a practice
maagemet spprt. Whether as a btiqe r a hlig cmpay, a hal ivestmet
csltig cmpaies allw a avisr/team t receive p-rt cmpesati i retr r
a prti the tre revee stream.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 9/34
callan capItal: taKIng contRol oF youR DestIny
“Schwab was itegral i itrcig s t vers a helpig s arrw r search r everythig
rm IT t perrmace mitrig t acial plaig stware. The Schwab cversi team was
critical i traserrig the accts cliets wh llwe s. We chse Schwab Avisr Services
becase its bra. They’ve bee i the bsiess cstyig RIA assets mch lger tha
aye else.”
—Trevor Callan, CIMA and CEO, Callan Capital , LLC
The experiece Trevr Calla a Calla Capital may t be represetative the experiece thers a is t a garatee tre
perrmace r sccess.
As Trevr Calla—CIMA a CEo Calla Capital, LLC i La Jlla, CA—stps r a mite i his ce verlkig
the Pacic ocea, he’s remie all the har wrk it tk t get here. He a his brthers, Tim a Rya,
cceive the iea jst sch a perch as early as 1994. They maage mre tha $150 milli i cliet assets
rm this chic, state--the-art ce—part Caliria mer, part ast-pace csltig rm a part yesteryear’s
Wall Street bllpe. oe ca’t help bt eel the Calla Brthers are ally where they always wate t be—i
ctrl their w estiy.
What was ce a lty gal became reality i Jaary 2007, whe the Calla team let its rmer wirehse rm t
start Calla Capital. There were may reass r this mve. Fr starters, the Callas wate t prvie tre pe
architectre r their cliets. “We spet a lt time at r rmer rm talkig abt pe architectre, bt i reality
we were ce t r rm’s platrm,” says Trevr. “Schwab es’t ce s t its platrm. Wrkig with a
cstia allws s chices we i’t have bere.”
Trevr’s team members als wate mre ctrl ver their cmpesati, which they elt shl be tie t their
iterests rather tha the iterests sharehlers the cmpay emplyig them. The iea creatig wealth by
wig the rm themselves appeale t them immesely.
“oe the tghest thigs i r rmer evirmet was stayig alige with the critical rm bjectives each
year,” Trevr recalls. “Fr example, we wate t market rselves as a team. Yet that was’t ecessarily what the
rm wate t see happe. We rselves stagatig. We’ cme p with a great marketig techiqe, bt by
the time we gt the g-ahea the pprtity ha cme a ge. S we became resistat t thikig tsie the
bx becase we were cstatly gig thrgh hps t get r iitiatives apprve.”
As a elite team cse high-et-wrth cliets, the Callas kew their ecisi t leave the rm wl’t g
tice. “The legal isses were the scariest part the whle prcess,” he explais. “There are may ecisis t
make whe leavig a wirehse. We pte t be very cservative a walke t, literally, with ly r pecils. As it
tre t, sch a exit rew zer legal implicatis.”
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 10/34
8
A CAse or stArting or Joining A registered investment Advisory irm
Wh I h R hRIa cdi?
RIA cstias mch mre tha hl
cliet assets. Schwab Avisr Services, r
istace, prvies varis levels prct,
bsiess maagemet, techlgy aservice spprt t cliet rms. ulike sme
iepeet brker-ealer mels, RIA
cstias view avisrs as clients—rather
tha spervise agets. As sch, avisrs
ca reely mve amg cstias a se
services as they wish.
sri
Thgh the ay-t-ay service prvie by
cstias is sally ivisible t the
avisr’s cliets, the level service a
iepeet avisry rm prvies t its
cliets is itegrally like t its cstias.
Base Schwab Avisr Services’ mre
tha 20 years experiece, the pprtity
t wrk clsely with a small grp service
represetatives is te cite as a key
avatage the cstia mel.16
“We have cme t kw a small grp
very capable service represetatives.
Schwab helpe s lear r l ti
what a service team meas. We have
may ries with Schwab wh ersta
what it meas t be best-i-class.”
—Felipe Luna, President, Wealth Management
Concert Global, LLC
The experiece Felipe La a Ccert Glbal, LLC
may t be represetative the experiece thersa is t a garatee tre perrmace r sccess.
Sice cstial services are s imprtat
t the ewly iepeet RIA, yr selecti
a cstial team is a imprtat chice.
The net Prmter Scre, geerate by a
sty i Je 2008 by Abt SRBI new Yrk
City, measres satisacti with prcts
a services ere by cstias.
The srvey reslts cite i Exhibit 2 ivlve1,000 RIAs maagig mre tha $10
milli as reprte i AdV ligs at the time
the sty. Schwab Avisr Services was
t ietie as the srvey spsr.
Hr’ hw i wrkd:
1. The 1,000 RIAs were aske hw likely
they wl be t recmme each cstia
Base (533)
Schwab
TDAmeritrade Fidelity
Pershing
(274) (219) (111)
EXHIBIT 2: NET PROMOTER® SCORE
-30
-20
-10
0
10
20
30
40
50
+47
-6-11
-30
Srce: Abt SRBI new Yrk City, Je 2008
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 11/34
AdVISoR ModELS To ConSIdER
they se t ther ivestmet avisrs a
scale rm 0 t 10, where 0 is “t at all
likely” a 10 is “extremely likely.”
2. The net Prmter Scre is the ierece
betwee the percetage “Prmters”
(wh respe 9 r 10) a “detractrs”
(6 r belw).17
Brd rd ri
Leaig cstias have spet ecaes
evelpig their ivestmet prct erigs
base the ees their cliets. Charles
Schwab & C., r example, is the th
largest prvier maage accts i
the u.S., with mre tha 2,300 maagers
available thrgh its platrm.18 Avisrswrkig with RIA cstias are t
cstraie by the maates a cetral
ivestmet selecti cmmittee a ths
ca mre reely select the prcts they eel
are best site r their cliets—which
meas they ca als establish aitial
cstia relatiships t access prcts
their “primary” cstia es t er.
“I was srprise t that we have accesst jst abt every brker-ealer’s research,
sice we have accts with mst the
majr rms.”
—Trevor Callan, CIMA, CEO
Callan Capital, LLC
The experiece Trevr Calla a Calla Capital, LLC
may t be represetative the experiece thers
a is t a garatee tre perrmace r sccess.
exHIBIt 3: tecHnology RelatIonsHIp
ehibi 3 hw rwrk r whih dir
r r. siir rd ibii, RIa r h
h rd hir w h hrh
rhir ir. adir r h
d ihr ir r hrh hd i d b
hird r.
m RIa di rid rdi r d rbi
ii hrh rrir r h ir wih
ri d r rihi
. adir ir i
i, rrh/wwir d hr i w.
CustodialSystem
Advisor
CustomerRelationshipManagement
PortfolioManagement
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 12/34
0
A CAse or stArting or Joining A registered investment Advisory irm
exHIBIt 4: scHWaB peRFoRmance tecHnologIes
I h w r, RIa di h iid h
r w idd dir b ri ird i.
shwb w prr thi’ pricr,
h w di ridr ri
ri—whih rir h ir wrki hrh
rhir r.19 shwb prisri™
i -ri bk- ri h h r
rii bi iii, idi ri ri
rr d bii i. ehibi 4 (b) riz h
prisri ri.
PrtliCeter a PrtliServices are prcts Schwab Perrmace
Techlgies (“SPT”), a part Schwab Avisr Services. Schwab Avisr
Services is a bsiess segmet The Charles Schwab Crprati a
icles the csty, traig a spprt services Charles Schwab a
C., Ic., a registere brker-ealer a member SIPC, as well as the pr tli
maagemet a acctig sltis SPT. CS&C a SPT are separate
sbsiiaries The Charles Schwab Crprati.
Portfolio Data
Management
Get consolidated
client data from
thousands of nancial
institutions, along
with management
of reconciliations,
nightly backupsand maintenance.
Performance
Reporting
Receive professional
quarterly presentations
to share with
your clients that
demonstrate the
value you provide.
Client Billing
Generate client billing statements electronically
and get help with uploading fees for
Schwab accounts and calculating
management fees.
PortfolioServices
Fr may avisrs, techlgy cstmizati
is key. Cstia platrms are te set p
t be cgrable t ay mber tsie
techlgy sltis. Iepeet avisrs
chse the best sltis base their
iqe ees.
pri r
h dir’ r
A avisr r team that rms r jis a
iepeet RIA rm that csties assets
with a RIA cstia are t emplyees r
represetatives , a ’t wrk r, the
cstia. That meas that they ’t receive
a “payout” rm the cstia.20 S there are
brach maagers impsig prcti a
grwth emas. Bt grwth is te still a
pririty r the RIA. As rms grw larger, their
ees te becme mre cmplex. Sme RIA
cstias er eicate teams t prvie
bsiess maagemet giace r cliet
rms, which avisrs ca chse t access.
Schwab’s Bsiess Csltig Services grp
has sigicat experiece helpig rms all
sizes, iclig mst the 55 rms with
mre tha $1 billi hel the Schwab
csty platrm as december 2008.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 13/34
AdVISoR ModELS To ConSIdER
“I r pii, the techlgy, spprt a
me ivestmet chices available r
r cliets are vastly sperir i almst every
way t r l brkerage rm platrm. Bt
mst imprtatly, we have bee impresse
aily with the cltre a cmmitmet t
excellece.”
—Ralph Courage, Managing Member
Courage Partners, LLC
The experience o Ralph Courage and Courage Partners,
LLC may not be representative o the experience o others
and is not a guarantee o uture perormance or success.
Hw d h di k ?
S hw is a cstia cmpesate
r prviig the brkerage, csty,
techlgy a practice maagemet
spprt jst escribe? Geerally, the
cstia, which is als a brker-ealer,
is cmpesate thrgh brkerage
cmmissis, r asset-base ees i lie
cmmissis, a ther ees pai by
the RIA’s cliets whse accts are hel
by the cstia. As we iscss i the ext
secti, wers what was previsly
escribe as a pre RIA rm set their w
ees a their w ee strctre.
Schwab Avisr Services’ primary revee
srces are trasacti revee (e.g.
cmmissis r traes) rm cliet
brkerage accts, asset-base ees (e.g.
ees rm mtal cmpaies base
shares hel i cstmer brkerage
accts) a asset maagemet ees rm
ivestmet prcts sch as Schwab
prprietary mtal s a maage
accts. Sme cstias prvie vale-
ae services t the avisry rm r a
ee, typically prtli acctig systems
a certai back-ce ctis.
May ew RIAs charge their cliets asset-
base wrap ees—similar t the wirehse
mel, i which the cliet pays a sigle ee
r bth ivestmet avice a trae
execti. I this mel, the RIA typically
pays the cstia r its brkerage a
ther services a asset-base schele.21
RIA rms that pass trasacti csts t
cliets keep 100 percet the revee
eare rm cliet ees.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 14/34
A CAse or stArting or Joining A registered investment Advisory irm
2
tHe economIcsoF InDepenDence
a Ri chk
T help y evalate the acial
implicatis gig iepeet, csier
that prir t the creati Mrga Staley
Smith Barey it was pssible, thgh
likely, r a wirehse t reach a payt 58 percet.22 Mre cmmly, the traitial
wirehse avisr ears 25 percet t 45
percet the ees pai by cliets.23 Baks,
meawhile, te pay avisrs a salary pls
30 percet t 40 percet the base salary
as a bs.24
gr Dr ci
– Wirehse Spprt Cstsgr p
– ot--pcket Avisr Expeses
n p
Captive iepeet brker-ealers may
capitalize the “payt” veraclar by
prmtig payts as high as 98 percet25
r tp prcers, bt the term “payt” ca
be misleaig. I practice, a istribti
88 percet t 90 percet bere acctig
r verhea expeses is mre cmm,
with bses smetimes ere as a
icetive t grw.26 By cmbiig the bs
icetive a the 88 percet t 90 percet,
a avisr/team ca theretically reach the
healie istribti 98 percet
revees, agai bere acctig r
amiistrative ees a verhea expeses.
Yet these aitial amiistrative ees
create a eve lwer eective payt.
Tiere amiistrative ees base
acct size ca pealize avisrs withsmaller cliet accts, resltig i a
eective payout betwee 70 a 90
percet. A typical icme statemet r a
avisr assciate with a iepeet
brker-ealer (IBd) breaks w as llws:
eiib R
– IBd Spprt Cst
– Amiistrative Feesei p
– overhea Expeses
IBD adir’ I + pr (l)
Ater payig the iepeet brker-ealer
r share spprt services, the verhea
expeses are te higher tha i the RIA
mel, largely e t payig r spprt
services whether they are eee r t.27
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 15/34
THE EConoMICS oF IndEPEndEnCE
Ird eripi RIa
Avisrs participatig i the Schwab Advisor
Services 2007 RIA Benchmarking Study
reprte that tp rms ear 69 percet t
73 percet net compensation, r owers’Icme + Prt, i the RIA mel.28 I ther
wrs, by maagig expeses aggressively,
a RIA rm ca maitai a 27 percet t
31 percet verhea expese rate, leavig
the remaier r pricipal raws, -
amiistrative pressial salaries a
ivestmet i the rm. This cmpares qite
avrably t ther cmpesati mels.
A simplie icme statemet r a pre
RIA rm llws. nte that maage
acct maager ees are ette t
Grss Revees.
gr R
– overhea Expeses
RIa owr’ I + pr (l)
mizi h RIa
I aiti t ptetially earig mre et
icme, iepeet avisrs ca bil
eqity a create a traserable asset with
sigicat eterprise vale. Byers typically
vale RIAs at betwee 6 a 10 times
cash fw,29 r betwee 1.8 a 3.5 times
revees, with the largest mltiples sally
applie t teams with $500 milli r mre
ee-base assets.30
exHIBIt 5: scHWaB 2007 RIa BencHmaRKIng
stuDy Results—oveRHeaD expense—top FIRms*
a udr m($mm)
25–100
100–250
250–500
500+
gr R (%) 100% 100% 100% 100%
– overhea Expese (%) 30.5% 28.8% 29.4% 26.7%
owr’ I + pr 69.5% 71.2% 70.6% 73.3%
*The tp 20th percetile reslts are shw r participatig rms with the lwest
“overhea Expeses,” which csist all expeses ther tha pricipal raws
a -wer pressial salaries (als calle -amiistrative pressial
salaries). This irmati is geeral i atre a limite. It is prvie r
illstrative prpses ly a may t be represetative the experiece thers.
It is t a garatee tre perrmace r sccess.31 The reslts the 2009
RIA Benchmarking Study were t available at the time pritig.
exHIBIt 6: scHWaB 2007 RIa BencHmaRKIng
stuDy Results—oveRHeaD expense—meDIans*
a udr m($mm)
25–100
100–250
250–500
500+
gr R (%) 100% 100% 100% 100%
– overhea Expese (%) 39.0% 36.3% 37.0% 34.5%
owr’ I + pr 61.0% 63.7% 63.0% 65.5%
*The meia reslts are shw r “overhea Expeses,” which csist all
expeses ther tha pricipal raws a -wer pressial salaries (als
calle -amiistrative pressial salaries). This irmati is geeral
i atre a limite. It is prvie r illstrative prpses ly a may t
be represetative the experiece thers. It is t a garatee tre
perrmace r sccess.31 The reslts the 2009 RIA Benchmarking Study were
t available at the time pritig.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 16/34
4
A CAse or stArting or Joining A registered investment Advisory irm
EXHIBIT 7: MERGERS & ACQUISITIONS OF RIA FIRMS
Total assets under management (AUM) acquired, in billions
Source: Schwab Advisor Services Strategy Group
2004 2005 2006 2007 2008
0
20
40
60
80
100
120
$140
$23
$56
$101
$54
$134
CA G R
’ 0 4 – ’ 0 8
: 5 5. 4
p e r c e
n t
May actrs ctribte t valati
melig, iclig, bt t limite t,
assets er maagemet, revees,
grwth, bk cmpsiti, percetage
assets that are ee-base, et peratig
prts, prt margi a ivlvemet
raimakers i the tre. I 2008, $134
billi i istry-wie RIA assets chage
has, p rm $101 billi i 2007.32
Bk/Brkr Fir cii prr
Wirehse rms te wat t ecrage
sccessl avisrs t stay with the rm
til retiremet. Fr this reas, sme have
create retiremet ctiity plas that
allw a avisr t ear aitial icme
i retiremet by passig his bk
bsiess t a teammate i his/her
rm.33 These sset prgrams may restrict
avisrs t sharig cliets with a limite
pl ther avisrs. Frther, tre
revee streams geerate by the retirig
avisr may be taxe as riary icme.
Fially, ctiity paymets are te
remitte ver ve years, imiishig the
real retrs.34
pi bi- d
As a iepeet bsiess wer, y r
bsiess expeses thrgh yr practice.
I y typically pay r semiars, meals r
cliet-appreciati evets sig ater-taxllars, settig p a iepeet bsiess
may have pre-tax beets.35
ardi ii rkd b shwb adir sri,
h d rwh r dr
qird r 2004 – 2008 w 55.4%.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 17/34
FoRgIvaBle loans FRom WIReHouses oR captIveBRoKeR-DealeR FIRms
—By Tm Giachetti a Hery Va Blk, parters with the legal rm Stark & Stark
At rst blsh, a rgivable la rm a wirehse r iepeet brker-ealer rm ca lk
attractive. Fr avisrs csierig mvig t ather large acial istitti, csier the
wsie t rgivable las:
•Thetransitioningadvisor/teamoftenfacespenaltiesintermsoflostdeferredcompensationand/oroption
vestig i asset r revee gals are t reache withi strict ealies. With market vlatility beig what it is,
reachig these gals ca smetimes be t the avisrs’ ctrl.
•Incentivepackagesusuallyincludecashandstock,yetasanemployeetherearelimitationstoinuencingthestockprice.
•Theloanforgivenessistreatedasordinaryincomefromataxperspectiveandtaxedattheadvisor’sincometaxrate.
The percetage tax pai the la rgiveess is sigicatly higher tha the percetage pai whe sellig a RIA.
•Thenewrmanditsshareholderssharetheprot;thetransitioningadvisor/teamtakestherisk.
s r RIa ri
Csier that the wer(s) a iepeet RIA chsig t sell a bsiess seve t ie years ater icepti may
ear mre tha i they ha accepte a rgivable la at the begiig that time peri. See the hypthetical case
sty illstrate i Exhibits 8, 9 a 10 r rther ptetial tax implicatis. I this example, the earigs are package
ieretly i that the avisr/team i’t have t cmmit t the cstia r seve t ie years t ear them.
The sale a RIA will either be a Stck/Membership Iterest Sale r a Asset Sale. I a Stck/Membership
Iterest Sale, the sharehlers/members are sellig their shares/membership iterest a pay capital gais tax
the ierece betwee the tax basis the shares/membership iterest a the sale price the stck. The lg-
term capital gais tax rate was 15 percet as Je 2009. I a Asset Sale, a large prti the prchase price
is allcate t “Gwill,” which is taxe as a capital gai.
Als csier the pssibility that the wer ies rig the ie-year peri. The wer’s amily iherits the shares/
membership iterest a their tax basis is eqal t the air market vale the shares at the ate eath. I they
immeiately sell the shares the RIA r a lmp sm, they pay capital gais tax. Eve i the sale were t reqire
a prti the prchase price t be pai ver time with iterest accrig the pai balace, the amily wl
ly pay riary icme tax the iterest prti the paymets.
Hdi ci
Fially, i y eel cmpelle t metize yr revee stream i the immeiate tre rather tha ater existig as a
RIA r a mber years, y might csier speakig with a represetative a hlig cmpay—a rm specializig
i csliatig RIAs. Hlig cmpaies te er sltis similar t rgivable las whe helpig a avisr/
team start r ji a RIA.
The services and opinions o Stark & Stark and Mssrs. Giachetti and Van Blunk are independent o Schwab. Schwabdoes not provide tax or legal advice. The taxes discussed are ederal taxes only, not state taxes, and the reader isadvised to consult with a tax proessional. This inormation is general in nature and limited. It is or illustrative purposesonly and may not be representative o your circumstances.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 18/34
6
A CAse or stArting or Joining A registered investment Advisory irm
a “urii” l
o the llwig pages, y will a
series charts: Exhibit 8: Cmparig
a Frgivable La With Startig a RIA
Firm;Exhibit9:SampleAnnualIncome
Simulation;andExhibit10:SaleofRIAFirm r Acceptace Bak/Brkerage
Ctiity Prgram oerig. At right
y’ll a glssary terms se i
the exhibits.
glossaRy
t-12
Trailig 12-mth revee at Bak/Brkerage F irm
riA oha exp
Cst rig ay-t-ay peratis. des t icle
pricipal raws r -amiistrative pressial salaries
o + ou--pck xp
Icmbet irm’s allcati r prit a verhea
riA ep valu
Amt irm may be wrth i sl
Bak/Bka Cu Pa
Allws retirig avisr t traser his r her bk i retr
r revee stream
n P valu (nPv)
dierece betwee the preset vale cash ilws
a cash tlws
ow’ ic + Pf
Icles the salaries a beeits wers pay themselves
pls the prit ater payig all n-ower salaries a
overhea Expeses. Typically, -wer pressial
salaries are csiere a direct Expese a therere are
pai i aiti t overhea Expeses. Amiistrative sta
salaries are part overhea Expeses.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 19/34
ai
The llwig assmptis were mae t
evelp the reslts shw i Exhibits 8, 9
a 10. Assciate ttes, te with
asterisks, ca be p. 19.
Grss revee r trailig 12-mth•
revee r the hypthetical rm i the
illstrati is $1,600,000.
niety percet the assets a revee•
llw the avisr/team ater startig the
ew iepeet RIA.
Revees grw 23.1 percet i the•
RIA mel verss 9.8 percet i the
wirehse r regial rm mel.*
Hypthetical avisr r team is•csierig acceptig a 9-year rgivable
la rm a cmpetig wirehse, with a
p-rt paymet 125 percet a a
back-e paymet 75 percet trailig
12-mth grss revee.
n-wers’ salaries + overhea Expeses•
are assme t be 35 percet i the RIA
mel, while the verrie (wirehse r
regial rm hairct pls t--pcket
expeses pai by the avisr/team) isassme t be 55 percet.
Whe it cmes t metizig the asset, a•
actr 2.5X revee has bee applie
t the prjecte grss revee r the RIA
rm i year 9. The eqivalet cmparis
pit i the bak/brkerage rm mel is
the rm’s ctiity prgram. A paymet
100 percet grss prcti r
year 9 is actre it the mel base
a ve-year paymet pla.**
The tax cseqeces refecte i the•
Exhibits were reviewe by Tm Giachetti
a Hery Va Blk Stark & Stark,
Attreys at Law. Their views are
iepeet Schwab. Schwab es t
prvie tax r legal avice. The llwig
assmptis were mae: a Stck/
Membership Iterest Sale i the RIA
Model;acapitalgainstaxrateof15%;
a riary icme tax rate 35%.
THE EConoMICS oF IndEPEndEnCE
While Schwab believes the regig assmptis are reasable, it ca give assrace abt their accracy. The assmptis may r
may t refect yr circmstaces.
n prti the abve iscssi shl be cstre as legal avice a/r apprpriate r ay specic rm’s circmstaces. Mssrs.
Giachetti a Va Blk are t makig ay represetati a/r recmmeati that a Stck/Membership Iterest Sale is a preerre
sale mel. Rather each RIA shl cslt with pressials t etermie what is best r its particlar circmstaces.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 20/34
8
A CAse for stArting or Joining A registered investment Advisory firm
Year 1 Year 2 Year 8 Year 9
Gross Revenue $1,440,000 $1,772,640 $6,168,348 $7,593,236
Non-owners’ salaries + Overhead ($504,000) ($620,424) ($2,158,922) ($2,657,633)
$936,000 $1,152,216 $4,009,426 $4,935,604
Start-Up Expenses (sunk costs) ($102,606) $0 $0 $0
$833,394 $1,152,216 $4,009,426 $4,935,604
Income Taxes ($291,688) ($403,276) ($1,403,299) ($1,727,461)
$541,706 $748,940 $2,606,127 $3,208,142
$18,983,091
Capital Gains Tax ($2,847,464)
Net Proceeds After-Tax $16,135,627
Total Net Proceeds After-Tax
Year 1 Year 2 Year 8 Year 9
Gross Revenue $1,440,000 $1,581,120 $2,770,632 $3,042,154
($792,000) ($869,616) ($1,523,848) ($1,673,185)
Operating Pre-Tax Net (Income + Prot) $648,000 $711,504 $1,246,784 $1,368,969
Forgivable Loan $2,000,000 $0 $0 $1,200,000
Pre-Tax Net (Income + Prot) $2,648,000 $711,504 $1,246,784 $2,568,969
Income Taxes (earnings) ($226,800) ($249,026) ($436,375) ($479,139)($77,778) ($77,778) ($77,778) ($497,778)
$2,343,422 $384,700 $732,632 $1,592,052
Continuity Program (Monetized Book Value NPV)** $3,042,154
Income Tax ($1,064,754)
Net Proceeds After-Tax $1,977,400
Total Net Proceeds After-Tax
$30,531,371
$9,729,170
Bank/Brokerage Firm Advisor/Team After-Tax Net
Income Taxes (forgivable loan)
Bank/Brokerage Firm Model
$30,531,371
$9,729,170
Monetized Book Value**
RIA Model
Bank/Brokerage Firm
RIA Owners’ Income + Prot Adjusted
Owners’ Income + Prot
RIA Model
TOTAL CASH COMPENSATION
RIA Owners’ Income + Prot After-Tax Net
A
B
C
D
EXHIBIT 8: COMPARING A FORGIVABLE LOAN WITH STARTING AN RIA FIRM
Starting an RIA and selling it in nine years* can be lucrative compared with accepting a
forgivable loan and fullling a multi-year commitment.
Override + Out-of-pocket expenses
The defaults on Exhibit 8 are illustrative only and are not meant to be recommendations or endorsements of how terms of an agreement should be
negotiated, nor does this Exhibit represent a guarantee of future performance. Actual experience may vary.
Years
Includes sale of practice/book in the RIA
Model and transition of practice/book
through a continuity program in the
Bank/Brokerage Firm Model
Years
C + D
A + B
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 21/34
THE EConoMICS oF IndEPEndEnCE
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
$3,500,000
1
Years
2 3 4 5 6 7 8 9
EXHIBIT 9: SAMPLE ANNUAL INCOME SIMULATION
RIA Owners’ Income + Prot (After-Tax Net )
Bank/Brokerage Firm Advisor/Team After-Tax Net
Year 9 Sale
EXHIBIT 10: SALE OF RIA
FIRM OR ACCEPTANCE
OF BANK/BROKERAGE
CONTINUITY PROGRAM
OFFERING
Net
After-Tax
Proceeds
From
Continuity
Program
$16,135,627
$1,977,400
0
5,000,000
10,000,000
15,000,000
$20,000,000
Net
After-Tax
Proceeds
From Sale
of RIA
*The rati rgivable las typically rs rm seve t ie years. As a prxy, assets er maagemet cmp aal grwth raterm 2002 t 2006 was 9.8 percet r wirehses, 12 percet r RIAs a 23.1 percet r Schwab Avisr Services RIAs. Srce: Wirehse
Assets&RIAAssets:CerulliAssociations;RIAAssetsatSchwabAdvisorServices;SchwabStrategyGroup.Pastperformanceisnoguaranteeof
tre reslts. usig a grwth rate 9.8 percet i the RIA mel reslts i a Ttal net Prcees vale $14,590,440.
**Metize Bk Vale ges by may ames29, 30 iclig “Termial Vale” a “Eterprise Vale.” This is what yr bsiess may be wrth.
While it is cmm t se iscte cash fws t etermie the vale a practice, we chse t se a mltiple revees t simpliy the mel.
A rm’s vale is ltimately etermie base may actrs iclig the stability the cash fw a market citis. It is reasable t se
a actr betwee 1.8 a 2.6 times revee r rms with $100 milli a p i assets er maagemet, while rms with $500 milli a
p may warrat a mltiple betwee 2.75 a 3.5 times revee.30 The eqivalet i the wirehse space is a rm’s ctiity prgram ere t
retirig avisrs. A ew the prgrams w reach 200 percet Trailig-12 (eqivalet “2.0” r this Exhibit), sally pai ver a 5-year peri
r the mst tere avisrs. We sprea the ctiity prgram cmpesati ver a 5-year peri sig 35 percet times the al year (9), Grss
Revee r Year 1, 25 percet r Year 2, 15 percet r Year 3 a 12.5 percet r Years 4 a 5 (r a ttal 100% r e times revee).
Evalatig the net Preset Vale (nPV) the Ttal Cash Cmpesati isplaye i Exhibits 8, 9 a 10 may help y evalate whether t start a RIA
rm r t accept a rgivable la. usig a 15 percet isct rate, the nPV reslts are as llws: RIA mel: $10,877,100. Bak/Brkerage mel:
$4,756,571 (ater isctig the 5-year ctiity paymet at 15 percet as well). At a 9.8% grwth rate, the nPV the Ttal Cash Cmpesati ithe RIA mel is $5,764,811.
The material i Exhibits 8, 9 a 10 is prvie r illstrative prpses ly a es t represet a actal case. It es t represet a
garatee tre perrmace. Actal experiece may vary. Exhibits 8, 9 a 10 are t itee t prvie specic acial, tax, cmpliace r
legal avice. Y shl cslt pressial avisrs i these els.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 22/34
some Reasons WHy aDvIsoRscHoose tHe RIa moDel
0
tki cr yr s
Servig cliets a icreasig et icme are tw the key reass avisrs chse the
RIA mel. I the Recently Independent Advisor Study ccte r Schwab by Kski Research
(ccle octber 3, 2008), 62 percet the participatig avisrs state the esire t
prvie mre persalize service as a etermiig actr r startig their w iepeet
ee-base rm. Sixty-tw percet als cite the pprtity r greater lg-term acialsccess. Bt there are aitial reass t start r ji a RIA. Accrig t the sty,
75 percet avisrs cite a preerece r wrkig r themselves.
ori di
The recet prlierati bak/brkerage mergers a acqisitis, has create a
atmsphere palpable certaity r may avisrs. Reteti ers rm wirehses may
have rther exacerbate issesi becase the rms makig the trasiti package ers
may have etermie eligibility by the individual’s prcti level rather tha the team’s.
Felig the re, at least e majr wirehse has mve t elimiate vertical teams, which
previsly allwe grps avisrs t ear a higher cllective payt.36 Frther, team
leaers te ’t have ctrl ver the hirig sta i the bak/brkerage mel. The
iepeet brker-ealer a RIA mels ar the wer the pti t ecie whether t
hire sta a whom t hire.
As mre a mre sccessl avisrs that they ca jst as well r better r cliets
witht the aliati a majr rm—a that the rm may actally be hlig them back by
limitig the way they bsiess—iepeece is becmig icreasigly attractive.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 23/34
mi cfi Ir
Avisrs te ecie that a great way t
er bjective acial avice is t start a
iepeet rm where they charge asset-
base ees rather tha cmmissis a
ee the prcts a sltis they ertheir cliets witht the prprietary
cstraits. “Fr me, [gig iepeet]
was all abt evelpig a evirmet
i which we cl act i the best iterests
the cliet sig a ciary staar
care,” says davi Brmelkamp, presiet
a CEo Allim Ivestmet
Csltats. “We elt like we ha t
this i rer t really take care r
cliets a act i their best iterests.”
RIAs are reqire t isclse ptetial
cficts iterest i their Frm AdV, which
they mst eliver t cliets at the start
the relatiship.
prii fibii
Iepeet avisrs, especially RIAs, ejy
greater pricig fexibility withi reglatry
gielies. They are ree t set their ee
schele with cliets. They ca ecie
whether r t t charge ees cash. They
ca charge hrly r plaig. This fexibility
allws them t be mre cmpetitive a
maage their practices mre eectively. It’s
bee Schwab Avisr Services’ experiece
that—sig a $1 milli cliet as a staar
r cmparis—the typical asset-base ee
is 100 basis pits (bps). Meia prices
might eclie t 60 bps r a cliet with
$10 milli i assets.37
“oe mtivati rivig the ecisi was
pricig. Whe we bega thikig abt
[startig r w rm], we thght that i
we were pitchig sme type erivative
r cllar it wl be ice t be able t price
that the street a t reach t it the
pe-architectre wrl i which we live.
We were tire lsig bsiess t baks
becase price.”
— John Krambeer, President and CEO
Camden Capital Management
The experiece Jh Krambeer a Came
Capital Maagemet may t be represetative theexperiece thers a is t a garatee tre
perrmace r sccess.
SoME REASonS WHY AdVISoRS CHooSE THE RIA ModEL
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 24/34
A CAse or stArting or Joining A registered investment Advisory irm
2
(in billions of dollars)
$34
-$26
-$14
-30
-15
0
15
30
45
$60
$60
RIA Assets
with Schwab
Morgan
Stanley
Citi/Smith
Barney
Merrill
Lynch
EXHIBIT 11: NET NEW ASSETS, 2008
Srces: Mrga Staley, Citigrp Ic., Merrill Lych & C. a Charles Schwab
& C. 2008 Qarterly Earigs. Als “Whle Ltta Lve,” Christia Mccil,
Registered Rep., September 1, 2008.
RIa Fir r grwi Fr
I the six qarters rm the start 2007
thrgh Je 2008, the three largest RIA
cstias gathere $215 billi i et ew
assets, cmpare t $168 billi brght i
by the tp r brkerages.38
Fr may grps,iepeece cl be the ticket t grwth:
The Glb Grp, r example, lache with
$180 milli a icrease cliet assets by
mre tha 30 percet, t $240 milli, i jst
15 mths. Three years ater the lach, it
ha srpasse $500 milli i AuM.39
“It’s easier t grw as a RIA. Y
yrsel i a ieret psiti i yr
hmetw by beig the CEo a wealthmaagemet rm verss beig a salespers
i a majr rgaizati. nw I’m ig
mysel paels a crprate bars.
We’re t beig viewe as a spsr as mch
aymre. Istea, I sit acrss the table rm
cliets a r a cmpay jst like they .”
—Trevor Callan, CIMA, CEO
Callan Capital, LLC
The experiece Trevr Calla a Calla Capital, LLC
may t be represetative the experiece thers
a is t a garatee tre perrmace r sccess.
ehibi 11 r w fw r hr h jr
wirh (rir h d ji r bw
mr s d sih Br) shwb adir sri,
whih rrd h hr bid i 2008.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 25/34
movIng FoRWaRDWItH InDepenDence
Jii RIa Fir
oce the ecisi is mae t perate as a RIA, the ext ecisi is hw t it. Jiig
establishe RIAs is emergig as a cmm meth r gig iepeet.40 Fr example,
Cverget Wealth Avisrs, LLC ae tw rmer wirehse teams i 2008, each maagig
mre tha $3 billi i assets at the time the mve. The teams reprt that they beete
rm the peratig eciecies a service cltre iheret i their ew rm’s mel. (See“Brs Wealth Maagemet: Sharig Ctrl Yr destiy,” page 24.)
While startig a rm may reqire re-creatig mch the irastrctre the avisr is se t,
jiig a establishe RIA may prvie a st laig r avisrs seekig a permaet ew
hme r r thse wishig t experiece the RIA mel bere lly egagig i startig their
w bsiess. Aliatig with a existig rm may ivlve less risk a lwer p-rt csts,
bt als er less ctrl.
It’s pssible t sbstatial spprt withi sme RIA rms. I act, the chice startig
a rm r jiig a existig RIA te epes the amt spprt the avisr ees.
Sme rms reqire that ivestmet philsphies alig. Mst search r avisrs wh will t
it the rm’s cltre.
sri wih ri
A service team i a existig RIA ca agmet the cstia’s cversi services whe a
ew avisr r team jis. I the existig rm has itsel trasitie rm the wirehse r IBd
mel r has previsly ae a avisr rm e thse mels, the mltiple resrces
will have rst-ha experiece with cliet trasitis. By leveragig existig services, the ew
avisr r team may be able t scale mre ecietly a ptimize cliet-acig service time,
t like the evirmet they are leavig.
“We have a sphisticate cliet base a eee a irastrctre tailre specically r them.
By jiig a rm like Cverget Wealth Avisrs, the irastrctre was alreay i place, sch
as maager research, techlgy a peratis. This allwe s t remai cse r
cliets a their ivestmet ees verss rgaizatial a bsiess maagemet isses.”
—Lori Van Dusen, Managing Director, Convergent Wealth Advisors, Institutional Group
The experiece Lri Va dse a Cverget Wealth Avisrs may t be represetative the experiece
thers a is t a garatee tre perrmace r sccess. Schwab es t recmme r erse Cverget
Wealth Avisrs r ay ther avisry rm r avisrs csierig jiig a existig rm.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 26/34
BuRns WealtH management: sHaRIng contRol oF youR DestIny
Ater weighig the risks a rewars iepeece, mre a mre avisrs are chsig t
ji RIA rms. Pal Hyes jie Brs Avisry Grp i Sa dieg ater speig 21 years with
a majr wirehse. He says that he mae the trasiti, alg with e assciate, t allw himsel
the reem a fexibility t mre easily serve cliets’ best iterests.
With assets er maagemet mre tha $100 milli, Hyes reasably cl have ecie t start his w
bsiess. Bt the spprt available rm like mie parters at Brs le him t ji a rm istea. As he pts it,
“Ale, y’re a isla. As a grp, y ca accmplish mre.” He as, “By jiig a existig RIA rm, we’re t
all speig the same llars t plicate cstly irastrctre a persel.”
It tk a team peple wrkig behal Hyes t maage his mve t iepeece. A persal cach kept
him schele. A bsiess csltat helpe with acial mels. With his parters, he prchase grp Errrs &omissis (E&o) israce at a sigicat cst savigs cmpare t iivial cverage. He gt bsiess israce
thrgh a lcal aget a wrkers’ cmpesati thrgh his payrll amiistratr. His baker prvie access t capital.
Hyes was prepare t ivest “whatever it tk” t g t his w. He als recgize that Jh Brs ha alreay
iveste time a mey makig may the big ecisis i creatig what Hyes calls a “avisr service hb.” Havig
the back-ce spprt i place wl allw Hyes t “hit the gr rig,” which, i tr, meat he cl spe
early 100 percet his time servig cliets. The parters at Brs Avisry Grp, iclig Jh Brs i oklahma,
Tm McGiga i Cectict a Hyes i Caliria, each have their w practice a share i the service expeses.
The experiece Pal Hyes, Jh Brs a Tm McGiga a Brs Avisry Grp may t be represetative the experiece thers a
is t a garatee tre perrmace r sccess. Schwab es t recmme r erse Brs Avisry Grp r ay ther avisry rm r
avisrs csierig jiig a existig rm.4
A CAse or stArting or Joining A registered investment Advisory irm
thr r i idr i ri
r h b rd :
Ji a RIA as a emplyee with the1.
pssibility byig it r earig
wership i the tre.
Merge practices, allwig r immeiate2.
share wership.
A cmpay that specializes i prchasig3.
RIAs r shares practices ca ai i the
lit t by erig practice maagemet
a acial assistace.
A avisr/team ca rm a rm that4.
shares services sch as techlgy a
legal/cmpliace with ther rms i
retr r a prti the revee stream,
while still bilig eqity i their w
iepeet rm.
Sme RIA cstias sta reay t t ly
help avisrs start a rm, bt als acilitate
itrctis t existig RIA rms.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 27/34
sr-u cT help avisrs evalate the acial
implicatis gig iepeet by startig
a rm, Schwab Avisr Services prjecte
the start-p csts ivlve r a rm with
$1,600,000 i cliet ees (RIA rm revees),
tw wers a tw amiistrative sta.
See Exhibit 12, page 26.
Healthcare, ret, spplies a israce csts
are pai year i a year t, s t all the
csts shw are icremetal csts. May the
marketig a pressial services csts als
verlap with ay give year’s prt a lss
statemet. depeig whether y chse t
lease r by, there may r may t be sigicat
techlgy irastrctre a ritre-relate
csts ivlve i peig yr rs.
We estimate the key start-p csts by sig
the Schwab Advisor Services Proft & Loss
Illustrator 41 (r illstrati prpses ly).
Still ther csts were estimate thrgh
iscssis with a reqests r qtatis
rm thir-party vers. Exhibit 12, which
es t icle ay sigig bses r
cmpesati r wers, pressials ramiistrative sta, is base the
llwig assmptis:
Hh d hr ir b.
otsrcig hma resrces, payrll a
beets amiistrati thrgh a Pressial
Emplymet orgaizati allwig r
prchase grp meical, etal a visi
plas. The amt shw icles a set-p
ee, a mthly ee, a the rst mth’s
paymet r meical, etal a visi, a
the aal set-p ee r a Schwab 401(k).
This is ly a example a is t meat
t be a qtati r israce.
mrki. Icles creati lg/
crprate ietity, bsiess cars, welcme
letter, le bsiess acemet a
r page website.
o r d i. Leasig
1,400 sqare eet at $22/s. Icles a
tw-mth w paymet.
Iri h d iii.
Prchasig techlgy irastrctre-relateitems sch as cmpters, priters a
mitrs, a tsrcig reprt recciliati
thrgh a hste prtli maagemet
system sch as Schwab PrtliServicesTM
at 432 ttal accts. (See page 10 r
mre irmati Schwab Perrmace
Techlgies.) utilities sch as Iteret,
Blackberries a phes (alg with their
service plas).
Frir rh. “u-shape” exective-
style esks, cerece tables, articlatig
keybars a ther ce rishigs.
ci/ ri ri.
The amt shw typically will cver
pressial thir-party legal csel
regarig, rmati the legal etity
(crprati, LLC, etc.) a SEC a/r
MoVInG FoRWARd WITH IndEPEndEnCE
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 28/34
state registrati, evelpmet
cmpliace prceres, review
emplymet ctracts a cliet
agreemet creati. I-pers assistace
with aits is assme t be actre
it gig verhea expeses.
Bi ir. Icles a estimate
aal expeses r Errrs & omissis
(E&o) israce a Prperty & Casalty
(P&C) israce with aggregate limits
$1,000,000 each. May actrs are se
t etermie the rates charge r E&o
Israce, iclig bt t limite t a
rm’s mix bsiess a traig activity.
addii r- i
Frm time t time, avisrs with assets at
varis levels ecie t wrk rm hme i
rer t maage expeses aggressively. Still
thers chse t lease space i exective
ce sites where ritre a basic
irastrctre is prvie at a arable,
agree-p price. Sme ew rms chse
t rerai rm iitially hirig amiistrative
sta, ptig istea t tsrce a
as-eee basis.
6
A CAse or stArting or Joining A registered investment Advisory irm
exHIBIt 12: sample RIa
staRt-up expenses
Health a ther israce beets $10,963
Marketig a bsiess evelpmet $14,000
oce ret a maiteace $5,133
Irmati techlgy a tilities $48,255
Fritre prchases $27,146
oce expeses (spplies, cpies, etc.) $2,623
Cmpliace/legal pressial services $11,500
Bsiess israce $6,940
Ttal $126,560
Fr illstrative prpses ly. nt all expeses are sk r icremetal t
Year 1 verhea expeses. A prti will be spet year i a year t.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 29/34
Avisrs t have t g it ale whe startig r jiig a rm. Whether a avisr
chses t ji a existig RIA r g ttally iepeet a wrk with a cstia sch as
Schwab Avisr Services, help is available. “orgaizatis like Schwab sta reay t make
the prcess cmplicate. They’re available a mre tha willig t ecate the brker,”
says Cli Higgis the Glb Grp LLC. “It’s really a simple prcess. I y wat aswers,
g t peple wh have ge thrgh the prcess.”
The experiece Cli Higgis a the Glb Grp, LLC may t be represetative the experiece thers a is
t a garatee tre perrmace r sccess.
adir cri sri
Avisrs a their teams trasitiig their cliets’ accts t Schwab Avisr Services
wrk clsely with a eicate team rm Avisr Cversi Services (ACS)—a grp slely
eicate t halig trasitis. ACS team members create cstm trasiti timelies.
They te play a key rle i the weeks that llw the avisrs’ resigati rm their
rmer rm. They er a cct ace-t-ace a virtal traiig t help avisrs’
ersta ew stware a/r ew systems. Imprtatly, this is a ll-time jb r ACS
team members—they are t plle rm a service esk temprarily t wrk a trasiti.
Schwab’s Avisr Cversi Services Team assiste mre tha 500 avisrs i
trasitiig mre tha 100,000 accts a $50 billi i assets rm Jaary 2005
thrgh december 2008.42 While Schwab Avisr Services has trasitie mltiple teams
with mre tha $1 billi i assets, a typical team sally trasitis $100 milli i its rst
12 mths.
ResouRces to ease tHe tRansItIon
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 30/34
8
The acial avisry bsiess has chage
ramatically ver the past ecae. May
avisrs wh ce were i step with their
rms w are csierig alteratives. I
may ways, bak/brkerages have create
a ati r iepeece. The shit t
teams a ee-base accts at the majr
wirehses set the RIA mvemet i mti.
Ivestrs are reay r chage. Fr avisrs,
iepeece ca eliver that chage.
nt ly ca iepeece er mre
ctrl ver the variables that etermie
satisacti amg high-et-wrth cliets,
it ca als prvie the ability t keep a
greater share revees a bil eqity i
a grwig bsiess. Avisrs ctemplatigiepeece mst carelly csier their
bsiess gals a risk tlerace i the
ctext their w practices. They mst
als pla carelly r their trasiti.
Mst avisrs with whm Schwab has
spke reprt beig happy they wet
iepeet. They attest that the reem t
ctrl their w bsiess practices—rm
hw t serve cliets t hw t cmpesatethemselves—carries pressial rewars
that exte ar bey the bttm lie.
yr n s
I r idri
idd d wd ik
pr & l Irr
i r- d r d ,
877-314-7821.
ab shwb adir sriSchwab Avisr Services is a leaig prvier
cstial, peratial a traig spprt
r iepeet ivestmet avisry rms. As
december 31, 2008, cliet assets
cstie with Schwab Avisr Services st
at $477 billi. These assets, maage bythe apprximately 5,700 iepeet
avisry rms Schwab Avisr Services
serve, represete apprximately 42%
ttal cliet assets cstie with The Charles
Schwab Crprati (thrgh its sbsiiaries).
Brkerage prcts ere by Schwab Avisr
Services are t FdIC isre, are t
garatee epsits a are sbject t
ivestmet risk, iclig the pssible lss
pricipal iveste. Schwab Avisr Services isa bsiess segmet The Charles Schwab
Crprati a icles the csty, traig
a spprt services Charles Schwab a
C., Ic., a registere brker-ealer a
member SIPC, as well as the prtli
maagemet a acctig sltis
Schwab Perrmace Techlgies (“SPT”).
CS&C a SPT are separate sbsiiaries
The Charles Schwab Crprati.
conclusIon
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 31/34
1 “Reay r a Reb,” Elle uzelac,
Research Magazine, Febrary 2009.
2 “The Trst Factr a High E
Cstmers,” Charles B. Weel, Fiacial
Istittis Csltig, Ic., May 7, 2008.
3 Frm 2005 t 2008, 365 avisrs rteams avisrs starte r jie rms
wrkig with Schwab Avisr Services t
csty their cliet assets.
4 The Recently Independent Advisor Study was
ccte r Schwab Avisr Services by
iepeet research rm Kski Research
rm September 16 thrgh octber 3, 2008.
Fity-ve avisrs wh recetly starte, r wet
t wrk r, a iepeet RIA rm were
iterviewe via telephe. Kski Research is
t aliate with Charles Schwab & C.
5 “Stability Ehaces Lyalty,” Sarah Hasar,
Investment News, december 7, 2008. Als,
“Tmlt Cl Expa Raks RIAs,”
Financial Advisor (Frtlie news), nvember
2008. Schwab Avisr Services ele 2,000
ib calls rm itereste avisrs i Q1
2008, p 40 percet rm the same peri
i 2007. Frm Q3 t Q4 2008, lie
iqiries icrease 41 percet.
6 See the llwig r rther perspective:
“Asset Gatherig Machies,” Halah Tryalai,
Registered Rep., Jly 1, 2008.
7 “I’ve Gt Yr Back,” Ae Fiel, Registered
Rep., december 1, 2004.
8 “Merrill bsts bs prgram,”
darla Merca, Investment News,
december 26, 2006.
9 “new Era Retail Brkerage Begis,”
Dow Jones News Wire, nvember 21, 2008.
10 A FundFire Exchange ccte byFundFire i Jaary 2009 styig the
Mrga Staley jit vetre with Smith
Barey that 83 percet 66 qick-
pll respets believe the brkerage
csliati tre will rive mre avisrs
t the iepeet chael.
11 “War Breaks ot r Wirehse Brkers,” Gail
Liberma,Financial Advisor , nvember 2008.
12
“Tie Chage r Traitial Retail-Brkerage Firms Expecte,” Investment News
Round Table: Wirehouse/Regional Brokerage
Firms, december 8, 2008.
13 “Breakaway uBS brker wrks lg
hrs, cl’t be happier,” Je Hrwitz,
Investment News, Febrary 8, 2009. The
article is base a webcast hste by
Schwab Avisr Services.
14 “Hybri Heave,” Halah Tryalai,
Registered Rep., nvember 1, 2008.
15 “Wall Street Sqeezes Small Brkers,
May G Iepeet,” Christia Mccil,
Registered Rep., May 13, 2009.
16 Levels at which RIA cstias eicate service
teams will vary rm e cstia t ather.
appenDIxenDnotes
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 32/34
0
A CAse or stArting or Joining A registered investment Advisory irm
17 Example: I there were r respets wh
gave a scre 10, 7, 4 a 1, respectively,
each scre wl represet 25 percet all
respets. The 7 wl be remve rm
the calclati, leavig e Prmter (the 10)
a tw detractrs (the 4 a 1). The net
Prmter Scre is the ierece betwee the
tw: 25 percet - 50 percet = - 25 percet.
18 The Cerulli Edge Advisor , Q3, 2007, a
Schwab Avisr Services Strategy Grp. The
Cerlli reprt iicate Charles Schwab & C.
was sixth. Hwever, the creati the jit
vetre betwee Mrga Staley a Smith
Barey mve Charles Schwab & C. p t
th place.
19
“Breaking Gridlck?” Andrew Gluck,Financial Advisor , February 2009.
20 “Payut” generally reers t a percentage
cmmissins r asset-based ee revenue earned
by the wirehuse r independent brker-dealer
that it pays t its registered representative
whse clients’ accunts generated that revenue.
Since independent advisrs are nt
representatives Schwab, they d nt receive a
“payut.” Schwab Advisr Services may enter
int st dllar arrangements and prvide ther
benefts t advisrs wh place their client assets
in custdy at Schwab.
21 Cstias have the fexibility t charge
cliets separately rm the avisr ee a
t charge a trasacti basis.
22 “Whle Ltta Lve,” Christia Mccil,
Registered Rep., September 1, 2008.
23 “Lw-prcers t exit wirehses,” da
Jamies, Investment News, Febrary 9–13,
2009. Als base On Wall Street
cmpesati gies.
24 “Tamig a I-Hse Rivalry,” Jh Chrchill,
Registered Rep., december 1, 2008.25 “LPL t challege csty biz,” Brce Kelly,
Investment News, Agst 6, 2007.
26 “The Matig Game,” Christia Mccil,
Registered Rep., March 1, 2009. Als,
“Wachvia stps erig prt-rmla
eals,” da Jamies, Investment News, April
12, 2009.
27 This cclsi is base igs the
2006 Moss Adams Financial Perormance Study o Financial Advisory Practices. The sty
ivlve 907 rms with 95 percet r mre
revees cmig rm ee-base maagemet.
I the $500,000 revee practice, the average
verhea expese r iepeet brker-
ealers was 11.51 percet higher tha i the
RIA mel. The $1,000,000 practice was 3.93
percet lwer a the $3,000,000 practice
was 4.48 percet higher.
28
The Schwab Institutional (nw knwn as Schwab Advisor Services) 2007 RIA
Benchmarking Study examined frm perrmance
acrss 647 advisry frms that did business with
Schwab Advisr Services at the time. Asset and
revenue grwth, surces new clients, stafng,
pricing and fnancial perrmance were amng
the tpics cvered. At the time the study, the
647 frms managed a ttal $256 billin r
mre than 140,000 clients. o these frms,
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 33/34
APPEndIx: EndnoTES
370 had more than $100 million in assets
and 110 had more than $500 million in assets.
Participants included 380 wealth managers, 43
fnancial planners and 224 money managers.
Results shown are or the wealth manager peer
groups rom the 2007 study. The top 20th
percentile (vs. the median) overhead expense
percentage is shown or each o the our
categories. So 20 percent o the frms in each
peer group came in at equal to or better than
(lower than) the overhead percentage shown.
29 Schwab Avisr Services Strategy Grup
a “M&A Talks Hit May Rablcks,”
Financial Advisor (Frtlie news),
September 2008.
30
Schwab Avisr Services StrategyGrup a “What is yur practice wrth? —
plety i yu’re ee-base,” Jh Churchill,
Registered Rep., August 25, 2008.
31 owers’ Icme + Prt is et verhea
epeses, which iclues supprt a
amiistrative sta plus -sta epeses
assciate with ruig a practice. owers’ et
take-hme pay is owers’ Icme + Prt less
epeses r -wer pressial salaries
a ay prts reiveste i the busiess.
32 Schwab Avisr Services Strategy Grup.
33 “Whle Ltta Lve,” Christia Muccil,
Registered Rep., September 1, 2008.
34 “A Seller’s Market,” Jh Churchill,
Registered Rep., September 1, 2008.
35 Csult a ta avisr t eplre the ptetial
pre-ta beets settig up a iepeet
busiess.
36 “Mrga Staley Chages Pay Plicies,”
da Jamies, Investment News, december
3, 2007.37 Schwab Institutional (w kw as
Schwab Advisor Services) 2007 RIA
Benchmarking Study .
38 “The Five new Realities Wirehuse
Avice,” Timthy d. Welsh a Patrick Butler,
Investment News, February 22, 2009.
39 The eperiece The Glub Grup, LLC may
t be represetative the eperiece thers
a is t a guaratee uture perrmace rsuccess. Yur eperiece will vary.
40 Base Schwab Avisr Services
iteral Advisors Turning Independent results
refectig a icrease rm 2006–2008
avisrs jiig rms.
41 The Schwab Avisr Services Prt & Lss
Illustratr uses the Schwab Advisor Services
2007 RIA Benchmarking Study (see tte
28) as a uati r its assumptis a
estimate csts.
42 Schwab Avisr Services Activity Metrics,
Jauary 2005–december 2008.
8/8/2019 Case for Starting or Joining Final Version for Online 081709
http://slidepdf.com/reader/full/case-for-starting-or-joining-final-version-for-online-081709 34/34
This content is or general inormation purposes only and is
not intended to provide specifc fnancial, accounting or legal
advice. You should consult your legal, tax and fnancial advisors
beore making any fnancial decisions.
Experiences expressed by advisors may not be representative
o the experiences o other advisors and is not a guarantee o
uture success. The mention o third party frms are not, and
should not be construed as a recommendation, endorsement
or sponsorship by Schwab. These frms are not afliated with or
employed by Schwab.
©2009 Charles Schwab & Co., Inc. All rights reserved. Member
SIPC. Schwab Advisor Services (ormerly Schwab Institutional)