By Jeff Nash
Industry pundits typically discuss the relationship between the independent broker/dealer and registered investment advisor segments of the independent wealth management space in “either-or” terms.
But we are witnessing a subtle but wide-reaching undercurrent of change that positions the IBD space for long-term dominance within the RIA segment, rather than as a parallel, competing structure. And IBDs are infiltrating that space through their super OSJ groups.
Short for “Office of Supervisory Jurisdiction,” super OSJs are large groups of independent financial advisors who have joined forces to provide compliance supervision support, all while continuing to enable each member advisor to own their own business. Over time, the most successful super OSJs have recruited hundreds of advisors to their platform, while expanding their services to deliver turnkey back- and middle-office solutions that encompass and transcend traditional compliance supervision support.
While these groups have largely stuck to the IBD side of the industry in the past, that’s no longer the case. In recent years, a wave of small- to mid-size RIAs have realized that mounting “do-it-yourself” costs and complexities that are front-and-center to owning one’s own RIA entity are too burdensome.
These RIAs are hungry for the same level of comprehensive, turnkey support that can be found in the IBD space, and super OSJs are rushing to fill the void, frequently with the active backing and support of their IBDs.
As these businesses weigh the pros and cons of the various options, the devil really is in the details. Here are some attributes that small- to mid-size RIAs should look for:
- A technology suite offering either an integrated bundle of services, vendor discounts with third-party service providers, or both. When an RIA is just starting out, it frequently makes sense to be a “do-it-yourself” shop, as whatever you save in costs, you theoretically get to keep for yourself. But as any RIA that seeks to grow has discovered, selecting the right technology solutions, and then ensuring that these solutions seamlessly integrate can become incredibly time-consuming and expensive. And any minute of the week spent on managing technology is time away from revenue-generating activities.
- Model portfolios and an experienced research team. An effective way to build wallet share and client loyalty is for an advisor to serve as strategic quarterback for all aspects of a client’s financial life, rather than taking a more piecemeal approach. Small- and mid-size RIAs need to look for super OSJ partners who have access to their own research teams and can provide these RIAs with a way to offload the more time-intensive aspects of wealth management that they have been doing themselves.
- An experienced team of compliance personnel who thoroughly understand the RIA model. It’s not uncommon for super OSJs and IBDs to have compliance staff who are jacks-of-all-trades with a knowledge of fee- and commissions-based models. But if part of the value that super OSJs who are serving RIA firms deliver is relief from the mechanics and minutiae of compliance, then RIAs should be certain that the compliance team they’re getting has expertise in their business model.
- Lower overall cost of working with the super OSJ offering RIA support versus going DIY. At its core, the super OSJ is a margin-driven model. RIAs can generally expect to get the raft of services as promised, but they should be wary that the super OSJ isn’t skimping on services. It’s crucial to kick the tires to see if the turnkey experience provides a level of service at least as good as the DIY approach, and whether it can be done at a scale that can lower the cost. In addition to actual dollars, it pays for advisors to put a dollar value on their own time, as well as a risk premium which is as a result of having one’s own RIA.
In all probability, IBDs will continue to jump into the RIA space with other solutions beyond partnering with their super OSJ groups. For some firms, this could mean forming their own full-service RIA custodial platforms. For others, such efforts might orient around enabling advisors to relinquish their own RIA and work purely on the fee-based side of the business under an IBD’s corporate RIA platform (the so-called “IAR-only” model, still largely conceptual).
Exactly how things will shape out remains to be seen, but one thing is clear: The concept of an IBD-RIA dichotomy is outdated, and the firms that embrace the gradual convergence of these two spaces will be best-positioned to grow and succeed.
Jeff Nash is founder and CEO of BridgeMark Strategies, a strategic consultancy and advisor transitions firm for the independent wealth management space.
