Revenue Split Models

Independent Firm Payouts

Starting your own Firm is a tremendous amount of work with a tremendous potential reward. This decision starts its own chain of subsequent decisions that must be made, each of which will play a major role in the overall economics of your business.

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Net Payouts

As an Independent, the most significant factor in your payout will simply be your size. If you start your own RIA, your starting gross payout will be 100%. But you won’t get to keep it all, and now the majority of your expenses will be fixed, meaning the larger the denominator, the higher the profit margin.

Many Firms opt to plug into a larger network of Independent Advisors to allow for sharing of these fixed costs, and these Advisors will be subject to payout grids, starting lower for smaller Firms and growing quickly with scale.

The smallest Firms may have to start at a payout around 75 percent, but as your business reaches around $250,000 in revenue, your payout should be in the 85-90 percent range. The remaining 10-15 percent goes to the independent network to cover things like compliance, recordkeeping, and operational support. Firms grossing more than $500,000 in revenue should be above the 90 percent mark in most networks. You will still be responsible for many of your other business costs, such as office space, support staff and marketing.

Other Considerations

If you are an Independent Firm, you are starting to look at your bottom line as a “net-income” rather than as a payout. The major players at this level are all offering payouts in the mid 90s for the largest Firms, so that part is largely commoditized. At this level, it is your ability to run your business that ultimately determines your success.

  • How effective is your marketing strategy and how efficiently can you onboard new clients? The more seamless this process is, the less support staff you will have to hire to continue growing the top line of your income statement.

  • To maximize the profitability of your business, at some point you will need to clone yourself. Every human is constrained by time.

    You will also reach a level where the business is so large, that a $5 million new client just isn't as significant as it used to be, and you will eventually run out of room to add meaningful relationships. The ability to grow inorganically is critical, especially in an industry consolidating as aggressively as financial services.

  • Whether you go the RIA route or plug into an independent network, a larger company will be in play when it comes to the money. At the end of the day, this piece of the puzzle is most crucial to your client's satisfaction. Choosing the right partner will play a key role in client retention, but the wrong decision will wreak havoc on your business.

  • This isn't special for Financial Advisors. It's a tech world, like it or not. Some Firms can't compete for new Advisors because they can't afford to pay competitive payouts or salaries due to their lack of embrace of business supporting technology.