Tom Daley, CEO and Founder, The Advisor Center
Two and a half years ago, I worked with 12 financial advisors who were 1099 independent contractors with a broker-dealer. Their broker-dealer would not allow advisors to own or participate in an outside RIA. The group had a 65% commission business and 35% fee based business.
They told me they believed their future growth would depend on three keys areas:
• Increasing their financial planning fees
• Growing their investment advisory assets under management
• Recruiting financial advisors into their practice
Since opening their own RIA hybrid and affiliating with an independent broker dealer:
• They have more than doubled their number of financial advisors to 25.
• Their advisory assets under management have more than tripled.
They contribute their success to the primary benefits of owning and operating their own RIA hybrid:
• Providing clients with both commissionable and fee-based services
• Leveraging the broker-dealer’s compliance and technology infrastructures, in addition to the services and technology offered through a custodian
• Making decisions in many areas of the operation
• Freedom to recruit advisors who want to maintain a broker-dealer relationship, advisors that want to be “fee-only” as well as those advisors wanting both a broker-dealer and fee-based practice.
However, deciding whether the full-service, RIA-only or RIA hybrid model is the right fit is a personal decision and requires much more time and effort than replacing the awning over the door.
For an advisor looking to grow their fee-based business or recruit advisors into their office, a move into the RIA hybrid model may present a beneficial solution. The advisor can potentially leverage greater flexibility to reach more consumers with more product choices and price latitude.
This platform should be a consideration for an advisor who enjoys either a meaningful fee-based business, wants to continue to service and maybe even grow those clients but also wants to grow or service the commission side of the business. The same is true for an advisor with a commission-based practice who is interested in expanding to fee-based services. I’ve talked to a number of advisors who find the RIA hybrid model is attractive for growing as well as for recruiting with the eventual succession planning in mind.
To determine if an advisor should truly explore transitioning into the hybrid model, I first have to understand their current situation on an emotional, professional and financial level. I always encourage the potential recruit to take a deep dive and ask themselves a number of key questions.
1. What do I want to accomplish? Why do I feel I may not be able to achieve these goals under my current business model?
2. Where am I in my business life cycle? How would making this transition and/or changing my practice impact my lifestyle?
3. Am I happy with my current status quo and willing to maintain this pace? Or, do I want more?
4. Is this good for my clients? Will expanding my services truly translate into growth? Is that something they are interested in?
5. If I want to grow through the attainment of new clients, what types of clients do I want to attract? How will I do that?
6. Does the ability to grow actually require a change of platform or broker-dealer? Or will the improvement of my current personal business practices allow for the growth I’m looking for?
7. If I believe I need to make a change, am I ready to put in the time and effort?
8. Do I know the numbers in my own book of business? What are my fee-based assets under management, commission assets under management? What is my fee-based revenue and my commission-based revenue? What percentage of my overall revenue is recurring? Lastly, how many clients do I service under my fee-based model and how many am I serving on the commission side?
Bottomline: Take your time. Do your research. Understand your options.