Much of the talk at the Financial Services Institute’s OneVoice 2012 conference in Orlando is about the challenge independent broker/dealers face by allowing advisors to have their own registered investment advisor. During a Tuesday panel session, IBD executives said the RIA model was putting pressure on their recruiting, profitability and expense of compliance.

Dick Averitt, chairman and CEO of Raymond James Financial Services, told FSI members that they are in the midst of a sea change and the RIA model will be the next major business model. For IBDs, that means reduced profitability, and the firms that will be successful will be those that figure out how to grapple with the new reality and make it work.

Jim Livingston, president and CEO of National Planning Holdings, agreed with Averitt that the margins were thin for IBDs in the RIA space because the custodians are supporting the structure. Livingston also said some of his advisors who have their own RIA are competing with National Planning Holdings on recruiting.

Livingston, whose firm has about 3,600 advisors under Jackson National’s broker/dealers, said more reps are enticed to form RIAs, but the broker/dealer still has the burden to supervise these advisors. This pushes margins on these advisors lower because of the added compliance costs, he added.

If FINRA does not turn out to be the SRO for RIAs, Livingston expects more reps to abandon the commission business and form stand-alone RIAs. Averitt also would expect more advisors to shed their commission business if this were the case.

That said, Wilson Williams, founder and CEO of Williams Financial Group, said FINRA has had a healthy change of attitude in which the agency is now more focused on systemic problems. He believes hybrid advisors with their own RIA would have a more efficient audit with FINRA as the SRO, because SEC audits are so different. This would provide some uniformity.

Averitt said FINRA examinations have become more principle-based, rather than rules-based. Livingston said his firm’s relationship with FINRA has been more rational, although they have had a few issues on the advisory (fee-based) side, which is outside of FINRA’s authority.