How Does A Broker-Dealer Grid Payout Compare To An RIA?

I'm Brad Wales with Transition To RIA. This is video #40 of the Transition To RIA video series where I answer RIA related questions I get from advisors just like you.
On today's video I explain how a broker dealer grid payout compares to an RIA. I discuss, among other things:
👉 How you're probably receiving less in payout than you realize
👉 The importance of an itemized bill vs bundled bill
👉 Some painful math regarding your payout
👉 How this all compares to the RIA model
What I do: At Transition To RIA I help financial advisors understand everything there is to know about WHY and HOW to transition their practice to the Registered Investment Advisor (RIA) model.
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🔹 Whitepaper ("11 Ways The Economics Of The RIA Model Are Superior To Other Advisor Affiliation Options"): transitiontori...
🔹 Transcription of video:
How does a broker-dealer grid payout compare to an RIA? That is today's question on the Transition To RIA question and answer series. It is question #40.
Hi, I'm Brad Wales with Transition To RIA where I help you understand everything there is to know about why and how to transition your practice to the RIA model.
In today's question, for those of you that are currently at a broker-dealer, whether you're in an employee model, perhaps at a wirehouse, maybe a regional firm, or even an independent broker-dealer firm, how does that broker-dealer grid payout compare to the RIA model?
I did do a previous question and answer - I'll link to it in the show notes - on what kind of bottom line take-home can you expect to receive as your own RIA. I'll circle back and briefly touch on that at the end of this Q&A because it will correspond with talking about that grid payout and how it compares.
It is important to first make sure you're even looking at your grid payout currently correctly, to know how to compare it to what that RIA model is.
So, a couple of things on today's video here I wanted to do is go through that and then talk about again, how it compares to what you might be able to receive in the RIA model.
First things first, a big topic of conversation when I'm talking to advisors about the RIA model is naturally, they want to understand the economics of the model. The two biggest drivers, I talk about this all the time, of why advisors transition their practices into the RIA model is the economics and the flexibility, and a lot of the questions and answers that I've done this series here for address both of those topics in one form or another, but certainly economics is a big part of that.
That question comes up, how much more could I make? I've been told I can make more as my own RIA, more bottom-line compensation. So how much more could I make?
The first part of how I answer that, and that's where it comes back to this broker-dealer grid payout conversation is I first say, well, what are you making now? And invariably the advisor I'm talking to ponders, okay, well this year because of my production, the little grid table and the comp plan, says at my production level, I'm getting 45% or whatever the case may be. That's oftentimes all that's looked at, so it's like, okay, I'm making 45% now, tell me how much I could make...what kind of bottom-line take home could I make in that RIA model?
We'll get to that, but first let's consider that 45%, and that would be perhaps in an employee model, or if I'm talking to someone in a independent broker-dealer model, they might say, oh, I'm making a 90% payout or an 88% payout or something along those lines.
Again, it's because they're looking at what that grid rate apparently tells them they're making. And I always then ask, I say, "Okay, so you looked in the comp plan for the grid, right?" "Yes, that's where the numbers are." And I say, "Well, so was the comp plan only a one-page comp plan? Because if all you had to do was just look at one table and that told you everything, then clearly it's a one-page comp plan."
And of course, that's not the case. Comp plans are 15, sometimes 20-plus pages. The reason is because while that grid rate of your broker-dealer might be fairly simple to put in a table, the next 15-plus pages of a comp plan are usually ways they then take money back away from you. I'll give you a couple of examples of what that is, but the underlying point is, just because you think it's 45%, what really matters is solely what goes in your pocket at the end of the day. Not what this stated, published grid rate is because again, 15-plus pages to follow and deduct from. Con't.....
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