[00:00:01] Speaker A: Hello and welcome, everyone. I'm Taylor Pankratz, and this is behind the breakaway. Together with my co host, Jason Barber, this show takes you behind the scenes of leaving your captive broker dealer firm and explores the world of RIa independence.
[00:00:20] Speaker B: All opinions expressed on the podcast by the hosts and guests are solely their own opinions and do not reflect the opinion of uptick partners. This podcast is for educational purposes only and is not legal advice and should not be relied upon as a basis for any decisions.
[00:00:41] Speaker A: All right, here we are, episode 13, lucky number 13.
[00:00:45] Speaker C: All right.
[00:00:45] Speaker A: And we got Taylor here, we got Jason here in the studio, and today we're going to be talking about what happens to your commissioned business when you leave the capture broker dealer space and go Ria. In our case, fee only RIA.
[00:00:59] Speaker C: Mm hmm. Yep. That's a common question that we get when we're talking to folks. And usually when we explain this, they're like, it's like a light bulb goes off. Of course, that's how this should work.
[00:01:09] Speaker A: Right. But you can't google this question, which is why there's no information about it.
[00:01:13] Speaker C: And honestly, I feel like there's even some kind of, there's a lot of recruiters out there that I think don't even fully understand this, and so they end up guiding you in the wrong direction. It's a very, very important thing, very easy to understand, but can be very confusing. So should we first talk about, let's say that I've got a client and they have a million dollars. They bought some a share mutual funds for a million dollars and they got an Nav breakpoint. Their fees are super inexpensive. They've got this twelve b, one fee of a quarter of a percent. Let's just say. How does that work? If I want, do I just have to leave that behind if I'm fee only? Since I don't have, I'm not even going to have a broker dealer.
[00:01:56] Speaker A: Right. And that was something that, when we were looking at our book before we broke away, that we were trying to figure out answers to these questions. And so how it actually works, let's say that you're going to do this, you're going to acat, those mutual funds are going to come over, they're going to leave the captive broker dealer space, are going to show up in your client's account at the custodian, and then you're going to do a share class conversion, which is not a taxable thing. It doesn't mean that they're all of a sudden all these gains, these built up long term gains have that have to be realized. At that point, it just means that a share converts to whatever share class is the cheapest that the custodian will let you hold. So in our case, it's typically the f two or f three share class, which means that coveted twelve b one fee, that 25 basis points goes away. Right. Which makes sense, because in the fee only world, you can decide to charge your client a basis point fee. Or you can charge them more. Right.
[00:03:04] Speaker C: Or zero, or whatever you want to charge them.
[00:03:07] Speaker A: But if you said, I want everything to be the same, I wanted all things equal. They're currently paying in an a share. They're paying all these internal expenses plus the basis points. Twelve b one fee, they move over and there's in the f two or f three, the internal expenses can actually go down, and the twelve b one fee goes away. So, long story short, because I was really in the weeds, you can move your a shares over to the only.
[00:03:37] Speaker C: Racing and the client doesn't have to pay a 1% fee or a one and a half percent fee.
[00:03:42] Speaker A: Could be whatever you want it to.
[00:03:43] Speaker C: Be because you get to decide. That's the idea.
[00:03:45] Speaker A: Yeah. So it actually, in most cases, the client can actually, it can save them money, which is great. And another question we get all the time is, what about my annuities or my 529s? Like, let's talk about, I've got a client that has a million dollar variable annuity. Do I have to leave that behind because I can't get these commissions or these trails on my million dollar annuity that I sold them five years ago? What happens to that?
[00:04:13] Speaker C: Yeah, so we have a, there's a variety of different providers of this service that exist in the industry. Retireone is the main one that we partner with. DPL partners is another one. And I think mutual securities is maybe the third one that is in this space. But basically what retireone does for us is they serve as the agent on our policies. And so we are doing a change agent form, and depending on if it's an IRA, we may have to do a change owner form, which is. It's a complicated process. Right. But it would be complicated no matter where you were sending it to. But you're essentially changing the agent to retire one. Okay. Retire one serves as the agent of the policy. So we're not receiving the twelve b one fees. We're not do having that. We're not having to have a broker dealer type affiliate affiliation at all. And yet what's so great is the data from that annuity feeds into our technology software. So from the client's perspective, when they're looking at their account, they pull up your mobile app, which, by the way, is going to be branded to you, which is great. So they pull up our holistic planning mobile app or whatever the brand is that you want. They're going to see the annuity right there on their app. They're going to see it as part of their overall holdings, etcetera. We continue to service it. It continues to be reported on from a performance standpoint, which some broker dealers, they don't even report on their performance anymore on these variable annuities, but ours will report on the performance of them.
And so you can continue to hold them, you can continue to service them, you can continue to advise your clients on them, et cetera. You're just not, you're basically foregoing this twelve b, one fee.
[00:05:58] Speaker A: But so what's great about the idea that the annuities can move is that we talk to advisors all the time that are mapping their book and oh man, I've got a really client I want to move. But they have this variable annuity or this fixed annuity or this life insurance thing or something that is that they hold in their account and they're wondering what happens with this thing? Is it going to be held back and stay at the captive broker dealer? Then they're going to get calls on it from the, what we call the babysitting advisors, the advisors that are handed these accounts once you leave, and they're going to just get inundated with calls from these people being like, well, your annuity is safe and it's time to renew it, or it's time to maybe you 1035 it or whatever. It's like anything that has to do with the annuity, anything that ever happens, the client's getting a call about it and you don't want that. And so that's what's so nice about having an option for a home for the annuities is the client is not going to get hounded by these salespeople anymore, being like, time to come in, the fixed annuities matured and time to generate another commission. And so that's what's nice.
[00:07:10] Speaker C: So talk a little bit about 529 plans.
[00:07:12] Speaker A: 529 plans, yeah.
[00:07:13] Speaker C: So in the broker dealer space, at least with our former broker dealer, there were no options at all for fee only or fee based type 529 plans when we were there. At least. Maybe something has changed between now and then, but I don't think so. So we had nothing but commission based 529 plans. We did a lot of business with capital Group. American funds was our main one, but we had various other ones. And so the great thing about it is that when you're a fee only RIA, there are fee based 529 plans that you can provide. Okay. And this data, again, feeds into our system. So, for example, coincidentally, capital Group has fee only or fee based 529 plans that you can use. So if you do business, for example, with 529 plans, with capital Group, you can literally just move those 529 plans from the broker dealer, and they'll basically be held at the mutual fund company. They'll be held by Capital Group. The client gets a statement from capital Group, but those shares get converted from a shares or c shares into f two shares, and then you can collect an advisory fee. So you can collect a fee depending on what you choose to do. I think in our case, we just are collecting a 25 basis point fee. It's not a huge amount of money and not something that we do a ton of service with. So we just felt like we'll just basically eliminate the commission part of the A shares altogether by using these f two s. But we'll just continue to collect the 25 basis points that, that we would have otherwise gotten in a twelve b one fee. And so from the client's perspective, great. We now have 529 plans. There's now no commissions anymore ever. We don't have to, but we can have this very low cost type setup. So that's been really, and again, data feeds in.
[00:09:05] Speaker A: Right, exactly. That was gonna be my point. What's so nice is that it still shows up in the client's view, as part of the total dollar amount that they're used to seeing. Right.
[00:09:15] Speaker C: Performance shows up.
[00:09:16] Speaker A: They were used to seeing their account saying a million dollars, and they had 100,000 in a 529. It's gonna still say 100,000. It's not gonna say, oh, this shows 900,000. And you get a statement from capital Group. That's, you gotta add that to this number, and that's member your million. That's, you just gotta do some additions. No.
[00:09:34] Speaker C: Yeah.
[00:09:35] Speaker A: You could tell clients that they're blue in the face and they're still not gonna like that.
[00:09:38] Speaker C: Exactly.
[00:09:39] Speaker A: And so that's what's so great about the data feed, is that the million dollar number that they're used to seeing.
[00:09:45] Speaker C: Is still going to show up. Exactly. And we also have another 529 plan that is very attractive called my 529. That we use lately, been doing a lot of business with them. That's the 529 plan from the state of Utah, I believe. And so that operates a little bit differently in that it's a fee, only 529. The fees are extremely low. It's, I think Vanguard is the main provider of this, of this platform. And so I think, don't quote me on this, but if memory serves me correctly, I think the fees to operate this 529 are somewhere in the, like, one 10th of a percent a year type range, is very inexpensive, and it has a data feed the same way, and it's got a very nice client portal, so the clients can log in. It's a very nice process, very simple to use. As far as setting up recurring contributions or sharing, you can, I think you can share a QR code with friends to deposit money into it and things of that sort. So it's very tech forward. 529 plan. The only difference between that and american funds is that particular 529 doesn't give you the ability to charge an advisory fee internally. In the actual 529 plan, you could charge an advisory fee separate. Okay. You could charge an advisory fee separate. So if a client has a non qualified account with, with dollars in it, you could just charge a normal advisory fee. It's just, you would bill it from that account instead of billing it from the 529 plan. That makes sense. Yeah, exactly.
[00:11:13] Speaker A: It keeps more of your, that keeps more of your tax free growth money.
[00:11:16] Speaker C: Exactly.
[00:11:16] Speaker A: Tax free. Growing.
[00:11:17] Speaker C: Yeah. Then it's like, literally the, for that particular, it's like being able to bill a Roth IRa on a different account, for example, like, you'd say, yeah, that makes sense. So it's a little different. But that, that, my 529, I'm very, a very big fan of that. That's a nice 529 plan.
[00:11:32] Speaker A: Yeah.
So is that kind of all of the. I'm trying to think if we have any other questions from people that'll call.
[00:11:37] Speaker C: And ask us, like, so life insurance policies are the same as annuities. Same kind of idea.
[00:11:41] Speaker A: And I want to just add to that whole conversation of the, of moving the annuities over or doing the paperwork for the change of agent or change of, change of ownership forms. It is just, it's just paperwork. Everything in the annuities, as anyone that's listening to this knows, it's not very many of them are docusign. Right. It's all wet signature. It's old school. You're mailing stuff, but it's not this. It's a paperwork thing. But it's not that onerous on the client to have to do. It's just onerous on the back. Your back office, your staff is having to do this paperwork, follow it up, lick a stamp, mail it. It's a thing. But once they've been moved, the client's just having to sign one or two things to have the whole thing happen. But it's just the paperwork required and.
[00:12:27] Speaker C: The length of time.
[00:12:29] Speaker A: It just takes a little bit of time. But it's not this burden on the client. It's just more of a burden on the efficiency of the office. But once it's moved and it's held at retireone or DPL, it's more or less on autopilot, save for watching the underlying holdings of variable annuities and things to make sure it's rebalanced, et cetera.
[00:12:50] Speaker C: I guess one question maybe would be like, can you sell new annuities or new life insurance? And the answer to that is yes.
[00:12:57] Speaker A: There'S fee only annuities now.
[00:12:59] Speaker C: Yep.
[00:13:00] Speaker A: And I guess there's fee only life insurance. Yeah, that's something that is. It's becoming. As this push towards fiduciary and fee only in the industry is happening, more and more life insurance companies are developing these different products that just are built for that. Instead of having this built in commission, they're built more for the fee only world. And so there's a handful of, what you want to call them, firms out there, annuity companies out there that have created these products.
[00:13:30] Speaker C: I think Pacific life is one that I'm aware of that's done a lot of work in this space.
[00:13:35] Speaker A: Yeah. And to me, it makes sense. The clients definitely, I think, appreciate that a little bit more from this aspect of this huge commission check up front is always this distasteful thing that you're having to try to work on.
[00:13:52] Speaker C: No matter how you slice it, even if you are looking out for your client and you swear up and down, you're like, I put my hand on the Bible. I'm the most ethical person. It's just no matter how you slice it, it's hard to deal. Even if you disclose it, it's just hard to deal with that conflict. And there is no such thing as conflict free advice. But it's just, I think every client appreciates knowing that you're taking steps to try to minimize it.
[00:14:21] Speaker A: Yeah, it's nice for the client because when the commission, big fat commission check goes away, so does a lot of the surrender penalties, etcetera, goes away, too. And so it's nice.
[00:14:32] Speaker C: Yeah, exactly. Or at least they get reduced.
[00:14:35] Speaker A: They definitely get reduced.
So that's. To summarize. That's how you handle this? Hey, I've got a bunch of commission business. I got a bunch of annuities, 529 plans. I want to break away to go ra.
What happens to those things? There is a solution. We had a ton of annuities on our books. We had not as much 529s. We had a good amount.
[00:14:57] Speaker C: And we have $3 million in 529 plans like that, so.
[00:15:01] Speaker A: But all those things moved over. It was. It's just paperwork heavy, but it moves over, and you don't have to leave those assets. And those clients aren't getting called from the babysitting advisors telling them that, hey, 1035 this or the fixed annuity is matured and want to put you in some high commission thing. Yep, that's a wrap.
[00:15:21] Speaker C: Okay.
[00:15:22] Speaker A: Thank you for listening. We hope you enjoyed the podcast. Please subscribe to our channel. You can find more of our episodes on YouTube, Spotify, and Apple podcasts. And check us
[email protected], where you can learn more about how we help breakaway advisors, just like yourself, find independence.
