Today’s podcast is about the value of independence. And why seriously consider going in the banks and brokerage firms have become a real thorn in advisor sides.
They’re more interested in shareholder value, they’re more interested in compliance are more interested in legal, and they’re interested in the lowest common denominator of the financial advisor or NET client of the firm. And the value of banks and brokerage firms has become a commodity. Mean essentially, they’re just custodians offering the same products and services.
As every other bank and brokerage firm offers small nuances of differentiation of alternative investments, maybe lending capability, maybe investment banking capability, capital markets, but in the end, the end services to their to your client, comprehensive wealth management solutions, trust estate while transfer philanthropic planning, global investment solutions, alter investments, blending, etc. – It’s all the same.
So, why pay a bank more than 50% of your net income fully taxable as ordinary income to a bank that offers nothing different than the next?
So, independence has become very much in vogue. Why? Because those same services, global investment solutions, lending, trusts, estate planning alternative investments global on and on and on are identical. at Fidelity Schwab, Pershing, etc. – Same.
The difference is that your net income is on average, around 65% to 70%, seven zero net operating profitability. And that’s pre-tax 1099 income, you’re managing your taxation. Number two, your evaluation. Sure you can trade all day long for 300, maybe 350% of your T 12.
From one firm and next to the next. But that is front ends, back ends. And those back ends with hurdles. Who knows if you hit those hurdles, locked up for 10 years, upwards of 12 years. And for the same products and services as the last bank that you worked for, the valuation of your independent RIA is roughly 7x your pre-tax income.
So a $1 million dollar business is generating $700,000 in that income. And you multiply that by seven almost $5 million of valuation for the day you go independent, arguably your lowest valuation and by the way, there are a ton of firms that are willing to take an equity stake in you. Day one.
So, independence or banks or brokerage firms. Doesn’t seem that as much of an argument. Thank you for listening.
As the Editor of The Gershman Group, a boutique financial services consulting firm, TGG brings expertise in financial analysis, strategic planning, and market research. With a keen eye for detail and a passion for helping businesses navigate complex financial landscapes, TGG delivers insightful, high-quality content to empower informed decisions. Backed by years of industry experience, TGG makes complex topics accessible through clear and compelling communication, shaping the firm’s thought leadership and commitment to excellence in financial services.
