Partnership Philosophy

Compensation Methodology

Expense FAQ's

Conclusion

Partnership Philosophy

We Don’t Know What We Don’t Know

Since launching AdvicePeriod for Advisors (AP4) in 2016, we have enjoyed significant growth. And, although we are still a small company, we are excited for the potential that lies ahead.
Nevertheless, it goes without saying that we don’t know what we don’t know and, like any business, will occasionally need to modify or clarify plans along the way. As an entrepreneurial business, we hope to learn from our mistakes and benefit from our experience.

Our Intent

AdvicePeriod’s intent has always been to reinvent wealth advisory by delivering best-in-class advice levered through technology, and to assist like-minded advisors in doing the same. This mission was the driver for AP4 - to empower others, our “Partners”- to serve the end client with transparency, thoughtful advice, and fair pricing that is reflective of the actual work and value we deliver.

What Services AdvicePeriod Provides to Our Partners

AdvicePeriod seeks to identify and collaborate with like-minded advisors to accomplish an array of important goals that are unlikely replicable by any one advisor or even a group of advisors. This impact extends beyond simple operations and investments and into the more abstract areas involved in starting and operating a business.

Thought Leadership

The founders of AdvicePeriod have a history of innovation in the wealth advisory market. AdvicePeriod is just one manifestation of the future of the industry. To illustrate the point, the company was not simply early in using the Robo-for-Advisor solutions, but rather AdvicePeriod was instrumental in creating Betterment Institutional (now Betterment for Advisors). AdvicePeriod is unique when it comes to tax and estate knowledge and the application of that knowledge to better serve clients. We sit on FinTech and custodian advisory boards, invest in FinTech companies, and push the industry...and the list goes on (some of which can be seen on our website [here]).

Moreover, because of the Lab’s exclusive clientele and related growth, more than one #1 Barron’s ranking under our belt, plus our industry recognition and access through our relationships, the reputational strength of AdvicePeriod is unique.

By joining the company, we hope Partners find the instant credibility and access to leading edge resources to be one of the most appealing and valuable factors in joining our team.

Technology

AdvicePeriod’s focus on technology and delivering best-in-tech solutions to our advisors is weaved into the company culture and emanates from the Lab, where new concepts are tested that ultimately benefit Partners.

Examples of AdvicePeriod’s technology focus: The company and/or its principals continuously invest their own capital in new companies where they can influence the outcome of that company’s development. Specific examples include:

  • Betterment
  • Advizr
  • Quovo
  • FeeX
  • JustInvest

We have taken Board or Advisory roles in numerous companies:

  • Vanguard
  • Betterment
  • Schwab
  • Fidelity
  • Advizr
  • Quovo
  • FeeX
  • PreciseFP

Each and every one of these opportunities includes an investment in time and, often, money. The investment and associated risk are borne solely by AdvicePeriod, while the benefits of those solutions that survive enure to all our Partner Advisors.

Brand Management & Marketing

By helping Partners improve their messaging or presentation; or helping the tenured active-focused advisor in making the leap from selling “I’ve got a better asset allocation” or “better access to managers” to helping them help others, AdvicePeriod insists on differentiating our services from the significant majority of the industry.

  • Earned media is hard to come by and often very expensive. AdvicePeriod teammates are frequent and trusted industry resources that help raise brand awareness.
  • Ongoing generation of professionally rendered client material templates to illustrate key concepts

Cost Management

Partners leverage our collective purchasing power for the betterment of clients and their business, including:

  • Custodian purchasing power
  • Manager fee discounts (e.g., Parametric, Breckinridge, etc.)
  • Professional Service Discounts (e.g., Group umbrella policy pricing)

This leverage also translates into cost discounts with vendors, such as Black Diamond, and membership discounts, such as NAPFA, that are passed directly through to Partners’ P&Ls.

Investment and Planning

Our team includes thought leaders and industry experts committed to sharing their knowledge through education sessions and white papers.

  • Model portfolio and implementation guidance
  • Financial planning resource library
  • Tax and estate planning resources

What AdvicePeriod Pays For

From the onset, the founders of AdvicePeriod have referred to our model as a franchise model; although legally and technically, we are not a franchise. And, while we don’t go out of our way to compare ourselves to Domino’s, the reference comes from our desire to operate very much like a franchise. Using this analogy, each Partner (or “franchisee”) owns their own client busines, but leverages the AdvicePeriod brand, people, and process. The agreement between both parties is that the “franchisor” will develop and modify the concepts and the “franchisee” will pay a franchise fee to use the brand and the solutions that the company develops.

What Partners Pay For

Like a “franchise” owner, our Partners have ownership in their business. To highlight this, we went out of our way to create a unique structure:

  • We have set advisors up to take their “business” and go somewhere else if they so choose.
  • We schedule clients that each Partner successfully acquires on their own and - contrary to the industry - we don’t employ non-competes / non-solicits for your client relationships should you decide to plant your roots elsewhere.

It is for this and other reasons that we share in the top line of a Partner’s business, but do not influence how one might invest in their business. This model works because we share the same vision and approach.

This doesn’t mean that Partners can do whatever they choose; instead Partners leverage AdvicePeriod’s platform, experience, leadership, and brand and our unrelenting interest in our Partners’ success. Like any business, we grow, we learn, and we evolve. Changes are sometimes thrust upon us and may come in the form of regulatory changes, technological changes, opportunities to expand our offering, or, most likely, from what we learn simply by running the business day-to-day. As we learn and make requisite modifications as well as clarifications around items not previously known or considered, some of these changes may result in new costs that are passed through to our Partners.

To be clear, we have zero intention of grinding our Partners with fees nor do we have the intention of violating our own principles. However, like any business owner - even a franchise - there are costs that reside at the franchisor level and costs that should reside at the franchisee/business owner level.

Nevertheless, unanticipated change will likely cause our business change. Accordingly, AdvicePeriod reserves the right to modify or clarify any and all cost definitions and methodologies. It is our intent to keep with the spirit of the arrangement while being mindful that there may be changes not within our control and or circumstances which have not been addressed above. We know issues will come up, and the best Partners will handle those with an open mind and work with us to find a solution.


Compensation Methodology

AdvicePeriod remains committed to a 70/30 client revenue share split. On a quarterly basis, each Partner receives a quarterly Profit-Sharing Bonus, which is the net amount of their 70% of collected client revenue for the quarter less any Partner expenses incurred with running their respective business. Sticking with the franchise example, Partners (“the Franchisee”) will be responsible for all costs for which they are in direct control plus any negotiated revenue share to compensate AdvicePeriod (“the Franchisor”) for the core infrastructure.

As a W-2 employee for tax purposes, each Partner covers the variable costs of running their business from this 70% - from servicing and growing their Partner-Advised Client base, paying themselves, as well as hiring any supporting advisors.

Partner Compensation Expenses Explained

The Partner Compensation Expense calculation includes:

  • Base Salary
  • Employer paid portion of FICA
  • Employer paid portion of personal insurance (health/dental/vision)
  • Employer paid 401(K) contribution/match

AdvicePeriod employs a Profit-Sharing Bonus approach for compensating Partners. Partners may also receive a bi-monthly base salary, which is treated as a business expense in the calculation of the Profit-Sharing Bonus.

In addition to any base salary paid to the Partner, the Partner Compensation Expense calculation also includes the employer paid portion of FICA.2,3 Our intent, while not legally constructed, is to treat every Partner as if they were a franchise for compensation purposes. Under this structure - or any structure where you manage your own business - self-employed persons are subject to SECA4 to ensure the government collects their full share of FICA.

Additionally, the Partner Compensation Expense includes any portion of personal insurance (health/dental/vision) costs that AdvicePeriod pays on behalf of the Partner. Should a Partner elect to participate in AdvicePeriod’s 401(K) Plan, any contribution/match made by AdvicePeriod is also included in the Partner Compensation Expense calculation.

Designee Expense

Should a Partner hire a dedicated employee or employees to provide support (a “Designee”), such Designees shall be “at will” employees of AdvicePeriod, eligible to participate in all benefit plans and policies of AdvicePeriod applicable to similarly situated employees. In calculating the Designee Expense charge back to the Partner, the amount shall be calculated based on the following schedule:

  • 125.0% of Designee’s base total salary and bonus compensation collectively up to $100,000 in compensation; then
  • 115.0% of Designee’s base salary and bonus compensation collectively between $100,001 and $275,000; and
  • 103.5% of Designee’s base salary and bonus compensation collectively in excess of $275,000.

The premium over the direct employee costs generally covers the G&A around that employee or employees.

As an example, a Designee receiving $95,000 in base salary and bonus compensation of $10,000 would have a Designee Expense of $130,750 (i.e. $100,000 x 125% + $5,000 x 115%).

In the event a partner has multiple Designees, the Designee Expenses shall be calculated on an individual, per Designee, basis.

Sales Expense

Sales Expense means any third party (i.e., a party not related to AdvicePeriod) or (if not a third party) Partner-approved party revenue sharing payment or obligation, referral fee, fee concessions, solicitation fee payments, or other customary and reasonable third party fees in connection with such amounts. Sales Expenses shall include any custody referral program expenses (such as those through Schwab, Fidelity, and Betterment among others) for new clients or for such expenses levied by third-party on Partner’s clients from their prior firm.

Such Sales Expenses for all clients are typically aggregated together by a third party, such as Schwab, then charged directly to AdvicePeriod. AdvicePeriod pays the total Sales Expense directly, then allocates specific amounts back to each respective Partner.

Service Expense

Service Expense means all expenses related to client service and shall include, but not be limited to: (a) travel expenses for Partner paid by AdvicePeriod; (b) entertainment expenses paid by AdvicePeriod directly attributable to any Partner-Advised Clients; (c) marketing expenses paid by AdvicePeriod directly attributable to Partner’s centers of influences, referral sources, and/or business development activities; (d) legal expenses (i) incurred by AdvicePeriod in response to incidents, actions, or contemplated actions associated with Partner-Advised Clients (or former Partner-Advised Clients if related to the period of Partner’s Services) and (ii) not the result of any negligence and/or omission of AdvicePeriod; (e) client trade error losses to the extent caused by either negligence and/or omission of Partner; (f) any other variable expenses paid by AdvicePeriod that are (i) directly attributable to Partner and/or any Partner-Advised Clients (e.g., third-party performance reporting) and (ii) not the result of any negligence and/or omission of AdvicePeriod; and, (g) any Designee expenses as defined below.

Examples of common charges included in the Service Expense, among other items:

  • Office Rent and Computer Equipment
  • Partner Mobile Data Plans
  • Postage/Fedex
  • Client Gifts
  • Guest Parking Validations
  • Partner/Designee Monthly Parking
  • Business Cards
  • Personal Certification Fees/Dues (CFA/CFP/etc.)
  • Use of Ghostwriters for Partner-authored pieces

Reporting

AdvicePeriod uses the Black Diamond Wealth Platform for CRM, client billing, portfolio management, and portfolio performance reporting. AdvicePeriod covers the firm-level subscription costs of Black Diamond and CUSIP licensing fees as part of the core tech stack provided to Partners; any variable per client account charges are allocated back to each Partner as part of the Service Expense calculation.

Compliance

Each Partner is an IAR under AdvicePeriod’s registration with the SEC. AdvicePeriod covers ongoing registration expenses and the MarketCounsel retainer under its core services. AdvicePeriod provides compliance-approved client contracts, Investment Policy Statements, non-disclosure agreements, and templated marketing materials for use. In the event that a Partner has partner-specific compliance needs that require the services of a professional legal, accounting, or other firm such variable compliance expenses shall be included in the Service Expense calculation. (e.g., a Partner desires to hire a Designee who has a non-compete / non-solicit agreement and wants MarketCounsel to review its terms prior to making decision to hire the Designee).

Business Insurance & Tax Expense

Paying taxes and maintaining appropriate business insurance are requirements of each Partner and each is covered under the corporate insurance policies carried by AdvicePeriod. As the number of firm clients increases as well as the number of Partners, there is a corresponding increase in the business insurance and tax expense incurred by AdvicePeriod on behalf of Partners. Each additional office further contributes to these costs. These expenses are paid directly by AdvicePeriod and allocated back to Partners as part of the Business Insurance & Tax Expense. For calculation of the Profits-Sharing Bonus, our intent is to allocate these expenses in an equitable, homogeneous manner commensurate with Partners otherwise managing their own business. However, to be clear, there is no direct AUM or other metric by which to allocate these expenses and AdvicePeriod will use its discretion in making any allocation equitably.

For any insurance claim brought by or against a Partner, each Partner bears the costs of the respective policy deductible.

Gross Receipts Tax

Various local taxes, including for example, California’s gross receipts tax or gross excise tax, is a tax on total gross revenues of a company. It is similar to a sales tax, but levied on the business owner rather than the consumer. This tax is levied by various cities, counties and/or states at a flat or variable rate, varying from 0% to upwards of 10% of gross revenues collected by a business operating in that jurisdiction. Each Partner is responsible for their respective jurisdiction’s tax. Functionally, AdvicePeriod pays all taxes levied by various jurisdictions and then allocates those expenses back to Partners pro rata, based on what percentage of each respective Partner’s client revenue was subject to a tax. For any client revenue subject to a tax, it is allocated back to the Partner at a 70/30 split (e.g., a Partner with client revenue generating $100 in gross receipts tax would be allocated $70, while AdvicePeriod would cover $30 of the tax attributable to that Partner’s client revenue). A Partner with client revenues not subject to any tax would not pay any tax as part of the Business Insurance & Tax Expense calculation.

Business License Tax

A business license tax, sometimes called a franchise tax, is the cost associated with conducting business in a particular jurisdiction, typically charged as a flat fee, annually. The business license tax varies from cities, counties, and/or states. AdvicePeriod monitors and pays all business licenses taxes on behalf of a Partner and then AdvicePeriod allocates these expenses to each Partner, respectively. In the event there is more than one Partner in a particular jurisdiction, the amount of the business license tax will be allocated across those Partners pro rata by team (e.g., if there are three Partner teams in a particular jurisdiction, which levies an annual business license tax of $1,000, then each Partner team would receive a $333.33 allocation as part of the Business Insurance & Tax Expense calculation). There will be no credit for partial years.

Workers’ Compensation Liability

Workers’ compensation insurance helps cover costs to employees while they are unable to work after suffering a work-related injury or illness and also provides programs to help employees prepare to return to work after their absence. Some states require businesses to purchase policies directly through the state while other states require insurance to be purchased on the private market. ates are typically based on what total payroll was for the year, employee classifications, and the firm’s claims experience. There are both an estimated premium payment, then a year-end true-up based on actual payroll.

AdvicePeriod administrates and advances all appropriate workers’ compensation insurance costs and subsequently allocates these insurance payments to each Partner’s Business Insurance & Tax Expense based on the Partner’s compensation for the prior year as a percentage of total AdvicePeriod payroll for that period. All firmwide employees (Lab, Ops, Reporting, etc.) are included in this calculation increasing the denominator in the equation. If AdvicePeriod’s total employee payroll was $8 million for the year and the Partner’s base salary plus Profits-Sharing Bonus was $400,000 during that period, then 5% of the total workers’ compensation expense for that year would be allocated to the Partner’s Business Insurance & Tax Expense calculation. If we are able to allocate the direct costs, AdvicePeriod will attempt to do so (i.e., if you are the only AdvicePeriod employee in a state requiring purchase of a policy directly through the state, that direct policy cost will be allocated back to you in lieu of a percentage of the firm’s broader policy).

Employment Practices Liability

Employment Practices Liability helps protect you if an employee sues you. Even if you are not at fault, defending a lawsuit for reasons such as discrimination, harassment or wrongful termination can be costly. This cost is allocated based on headcount. If the firm has 50 employees, then each Partner would be allocated 2% of the costs of the Employment practices liability coverage.

E&O, Cyber, Umbrella, General, Fidelity, Property & Casualty Liability

An RIA firm that does not have proper insurance coverage exposes itself to serious business risk. AdvicePeriod has comprehensive professional and management (“E&O”) liability insurance (collectively, $8 million in current coverage, an amount we revisit annually). Additionally, the firm maintains General, Fidelity, Property & Casualty, Cyber, and Commercial Umbrella policies. We continue to evaluate the appropriate level of coverage relative to industry standards, client revenue, number of clients, and amount of AUM, as well as number of employees. These insurance expenses are allocated across Partners pro rata based on annualized client revenue.

Lab client revenue is factored into the expense allocation calculation (e.g., if Lab revenue is $15 million and aggregate Partner client revenue is $10 million, then $100,000 in premiums would be allocated $60,000 to the Lab, with $40,000 then allocated across the Partners pro rata, by annualized revenue; thus, a Partner with $500,000 in client revenue in this scenario would be allocated 2%, or $2,000, of the premium costs). Effectively, including the Lab client revenue in the calculation reduces the expense to Partners.

Summary

It is our hope that as our partners and team members, you recognize the value that AdvicePeriod for Advisors strives to deliver. We believe in continuous improvement and try to never settle for the status quo. This continual search for ways to improve will undoubtedly lead to clarifications and modifications to our arrangement as we all learn and as circumstances change in ways beyond our control. It is the spirit within which we make these decisions that we hope you will seek solidarity and afford us the benefit of the doubt, as we will you.

Sample Compensation Methodology Application

As an example of how the expenses tie to net revenue with two sample LA-based Partners with $400,000 and $800,000 in client revenue. Partner A does not have a Designee while Partner B has one Designee at $75,000 in Base Salary + Bonus.


Expense FAQ's

Q: How do you determine what percentage of my compensation is paid in base salary versus the quarterly Profit Sharing Bonus?

AdvicePeriod aims to pay between 70-80% of your expected net compensation for the year as base salary with the balance to be paid as a quarterly Profit-Sharing Bonus. The actual percentage varies based on your total revenue base, client concentration risk, and known/projected expenses.

Q: What expense can I charge back to the Company?

The intent is that all legitimate business expenses may be expensed through AdvicePeriod. These include items such as client meals, phone/data plans, etc. You may not expense your automobile through the company; however, deducting business mileage is an acceptable alternative. Nevertheless, we recommend consulting with your tax professional when making these decisions.

Q: What are AdvicePeriod’s retirement plan options?

All Partners participate in AdvicePeriod’s 401(k) plan, where Partner’s are eligible to make an elective deferral up to the annual contribution limit for their age. Partner’s become eligible for participation begins at quarter-end after 90 days of employment with AdvicePeriod.

Additionally, in the first quarter of the calendar year, AdvicePeriod makes a contribution to equal to 3% of a Partner’s compensation for the prior calendar year, subject to certain IRS caps (currently limiting this contribution to $8,250 for 2018). All Partners receive this 3% contribution, which vests immediately, and it factors into the Profit-Sharing Bonus calculation. All plan benefits are subject to change or modification over time.

Should you elect to hire a Designee, they are eligible for participation in any available plans, with their 3% contribution included as part of the Designee Expenses Schedule.

Q: Am I able to participate in AdvicePeriod’s health insurance plan?

Partners may elect to participate in any of the group-sponsored insurance plans offered by AdvicePeriod (currently health, dental, and vision). Participation eligibility begins month-end after 30 days of employment. The employer portion of your insurance costs is included in the calculation of your Profit-Sharing Bonus. Dependents are eligible for coverage, with you covering 100% of their expense.

Should you elect to hire a Designee, they are eligible for participation in the available plans, with their employer costs covered as part of the Designee Expenses Schedule.

Q: Will AdvicePeriod cover the cost of my own office space?

Should you choose to lease office space, you must sign the lease in your name, not that of AdvicePeriod, though you may run payment of office rent through the company (often done by providing them your Corporate AMEX for billing purposes). As further incentive to introduce new Partners to AdvicePeriod in your area, AdvicePeriod will consider opening and funding an additional office in cities where there is significant concentration of employees and Partners.

Q: When are client fees collected and when am I paid?

Clients are billed quarterly in advance, with the exception of Betterment accounts, which are billed quarterly in arrears. Your base salary is paid semi-monthly, with the Profit-Sharing Bonus calculated at quarter-end and paid quarterly. Advisors/Partners are expected to have all accounts prepared for quarterly billing at least one week prior to the end of the quarter. Preparation means that there is sufficient liquidity to make the fee payment and that all fixed fee bills are prepared well in advance and all variable bills are prepared within three days after then end of the period.

Q: How am I paid in the interim between when I start and when client fees are collected?

During your first quarter with AdvicePeriod, you will receive a draw, set to cover the amount of your pre-tax health insurance costs. After the end of your first quarter and we are able to assess your signed client revenue and anticipated quarterly expenses, we adjust your salary to approximate 70% of what your compensation is expected to be for the quarter.

Q: Are there any limitations on who I can hire and what I pay them?

Hiring an individual to join your team is at your discretion; hiring or committing to hire an individual is subject to prior written approval of AdvicePeriod in its sole discretion. Our intent is to ensure a standard of quality is met with all of our team members of AdvicePeriod, and that your business can sustain the hire from a financial perspective.

Conclusion

The primary object of AdvicePeriod for Advisors is to create an environment that allows like-minded advisors to leverage the AdvicePeriod resources, while enjoying the ownership and control of the client business they originate. However, like the industry, our business is in a constant state of reform; something we attempt to adapt ahead of at every turn. In this spirit, we have attempted to outline the structure of the relationship as clearly as possible.

Nevertheless, unanticipated change will likely cause our business change. Accordingly, AdvicePeriod reserves the right to modify or clarify any and all cost definitions and methodologies. It is our intent to keep with the spirit of the arrangement while being mindful that there may be changes not within our control and or circumstances which have not been addressed above. We know issues will come up, and the best Partners will handle those with an open mind and work with us to find a solution.

2The self-employed person's FICA tax rate for January 1 through December 31, 2018 is 15.3% on the first $128,400 of net income and then 2.9% on the net income in excess of $128,400.

3If you are self-employed, you pay self-employment tax (SECA) based on your net income (profit) from your business. You pay this tax the rate of 12.6% of that income.

4To ensure that self-employed individuals still contribute toward Social Security and Medicare, the federal government passed the Self-Employed Contributions Act (SECA) in 1954. SECA established that without employers paying half the tax, self-employed individuals would pay the whole 15.3%. This tax paid by self-employed individuals is known as the SECA, or more simply, the self-employment tax. https://smartasset.com/taxes/self-employment-tax#q=seca