Turn On Assets is a phrase used by firms as one way to measure the productivity of their advisors. It is sometimes referred to as The Turn for short.
Let me present a few simple examples:
1. A mutual fund sales rep manages $8 million dollars. Half of it earns him a trailer of 0.50% (DSC funds held more than a year), and the other half earns him 1.00% (sold on a front loaded basis). He further places $2 million of new business into DSC funds (earning 5% up front). He manages $10 million in total, and his Turn On Assets is essentially his commissions earned divided by the assets managed for the year: $160,000 / $10,000,000 = 1.6% Turn.
2. A stockbroker manages $20 million dollars and regularly trades stock positions for all his clients. He generates $200,000 from buy/sell transactions. He further places $2,000,000 in new issues (IPOs, marketed deals, bought deals, etc.) which generates $60,000 in commissions (although clients don’t see a commission for those purchases). The turn for this broker is $260,000 / $20,000,000 = 1.3% Turn.
These are just some examples, but you get the idea. Generally speaking, a broker would be expected to have a higher turn in the first few years as assets are being gathered and the turn would be expected to slowly decrease to about 1%. If the Turn is closer to 2% and the broker is established, this could raise some flags internally as the broker could be accused of “churning” – generating an excessively high number of transactions, and commissions, that may be in the advisor’s interest, but not the client’s best interest.
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Thanks for the explanation. It’s great to hear it from someone who has seen it up close and can explain things clearly.