Transparency Matters: Focus on Your Net Payout

Know Your Fee Structures, Require Transparency And Check For Retained Commissions To Maximize Your Payout

In a couple of recent articles, we have argued that when independent broker-dealers or corporate RIA firms make under-the-radar, gradual changes, they tend to have more of an impact over time than sudden shifts in internal policies or procedures that often get more headlines.

In one piece, we discussed firms slowly reducing the number of alternative investments on their product platforms. In another, we focused on model portfolios, pointing out that firms have increasingly made them compulsory. In different ways, each trend underscores how some advisors now have less freedom and flexibility to serve their clients.

In the final article on this theme, we’ll set our sights on payout. Over the years, the industry has worked tirelessly to make product and service fees clear to clients. The irony is that as this has happened, many pay scales have slowly become less transparent, which has made it more difficult for advisors to gauge their net pay.

The fact is that you shouldn’t have to work hard to figure out how much money you make. Be mindful of the following to better educate yourself:

You Deserve Full Transparency.

Full transparency

After the pandemic, some restaurants and hotels began implementing additional service charges in response to higher food and labor costs. Many highlight the added fees explicitly. Others, though, do not – which angers some consumers.

Unfortunately, some independent firms have adopted a similar approach. Specifically, advisors don’t always appreciate what firms charge them to access money management platforms. Granted, fees are a reality of doing business, but when, for whatever reason, advisors don’t know how much certain ones affect their net take-home pay, that’s when things become problematic.

Understand What’s Included – And What’s Not.

Increasingly, you have to ask yourself, what do my monthly fees include? That’s because many services and offerings that were once a part of any standard affiliation package now cost extra. Take technology. At one time, this was always included. Now, not so much, with some tech-related fees costing advisors over $10,000 per year.

That, of course, is an outsized example, but it helps to underscore a crucial point: Do you want to pay separately for everything you need or would you rather get charged for the entire relationship? Or another way of putting it, who cares if your gross payout is high if what you net is lower than ever due to a series of individual fees?

Is Your Firm Retaining A Portion Of Your Payout Before It Hits The Grid?

Just like not all goods in other industries are priced the same, the cost of investment products and solutions can vary. And while compensation should never be the determining factor in recommending a product to a client, firms shouldn’t limit how much of a commission gets applied to your paycheck – which sometimes happens with complex products.

Undoubtedly, it is important to eliminate conflicts of interests. But if you determine that something is in the best interest of the client, meets their risk and investment objectives and are transparent about the costs, you deserve to get compensated for the time you have invested to understand it and educate the client about it.

Yes, all sorts of businesses from every imaginable industry must increase prices to cover rising costs to remain competitive, including ours. But whereas many firms take the time to convey price increases and explain that they are part of delivering advisors the services and support they value, some have opted against being as transparent and forthcoming.

So, how do you educate yourself and compare the extremely hard-to-compare differences between firms across the industry? Simple. Focus on what you net.

It doesn’t matter what your gross or stated payout is. What you receive after you’ve paid all your expenses – that’s how you determine if you’re getting good value for what you pay your firm.

At the end of the day, you no doubt go to great lengths to ensure that your clients know how much they pay in fees and what those fees are for. Why do you deserve anything less from your firm?

Jamie Mackay is EVP, Chief Operating Officer at SFA Partners, an Atlanta-based family of companies focused exclusively on empowering independent financial advisors.

This article is part of WSR’s Sponsor Partner Content series.

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