It’s been a little over a year since Ed Swenson, the former Dynasty Financial Partners COO and co-founder, joined Osaic (then Advisor Group) as president of RIA Solutions, a newly created role.
Swenson was tasked with creating and managing Osaic’s RIA-only and hybrid channel strategy along with developing a corporate RIA platform for fee-based advisors. He’s also been building out a W-2 employee affiliation model for RIAs who use Osaic. Advisors who choose to affiliate that way come under Osaic’s corporate RIA.
Swenson recently spoke with WealthManagement.com about what his team has accomplished in the last year, what the RIA affiliation models look like, and how Osaic’s RIA channel differs from other firms.
The following has been edited for length and clarity.
WealthManagement.com: What have you been building at Osaic for the last year?
Edward Swenson: We are a very different company now than Osaic was two or three years ago. We are finishing up early next year in Q1 the [what we are calling the] Journey to One, which allows us to operate as one company under one broker/dealer. And part of that initiative, which is very important to [CEO] Jamie [Price] and the executive team, which I've joined, is to increase our capabilities on the RIA and advisory part of the platform. I think we bring a unique scale to the marketplace. And scale matters more now than it ever has in wealth management. And I think if you think about us like a wealth management platform, my job is to leverage that scale on behalf of the RIA ecosystem out there.
Whether it means different affiliation opportunities, whether it means leveraging our product platform capabilities, whether it means leveraging what we call our “advantage companies,” which are our trust, brokerage investment bank and asset management capabilities, on behalf of advisors. I also throw tech in there. All of these things are what I believe will drive growth in the RIA channel and ecosystem for the next several years.
WM: Can you expand on what the different affiliation options are?
ES: Since Jamie Price took over in 2016, our traditional business could probably be defined as traditional broker/dealer and hybrid. That’d be our core business. With the purchase of Infinex about two or three years ago, we added the institutions channel, so that would be small banks and credit unions. In the United States, that’s about a $3 trillion total addressable market.
We’ve also added the W-2 affiliation. We added that under my leadership in the third quarter of last year. W-2 would allow us to purchase books of businesses and have advisors on our platform in a W-2 capacity, not a 1099 capacity. That’s about a $14 trillion addressable market in the U.S.
And the last one would be our fee-only affiliation model, and we’ll be standing that up next year. And that would allow folks to drop their FINRA licenses and operate off of the Osaic chassis, so getting all the benefits of our scale but in an SEC-only, fee-only capacity.
WM: What does that W-2 model look like?
ES: There are a few themes in wealth management, and one is that the RIA market is a relatively fragmented marketplace. The W-2 channel allows us to purchase books of business. You’ve seen a lot of players out there doing that in the last decade. Interestingly, I think the actual benefit for Osaic is that we have a lot of advisors on our platform who will eventually retire, and this is our ability to help those firms by buying them. There’s very little friction involved in that transaction, right? You don’t have to repaper your accounts; you don’t have to go to another firm; you don’t have to disrupt your client relationships. We’re happy to have that advisor stick around for three to five years. But it gives them certainty on what their final succession plan will be, and it allows us to keep those assets on-platform.
We have about 11,000 advisors. So we’re seeing a lot of interest internally for those advisors that are getting to that point in their career where they want to retire or they want to transition their book. The W-2 model allows us to do that, rather than them having to go somewhere else.
There are about 16,000 RIAs in this country. Half of those have under $100 million in assets. This market will continue to consolidate over the next decade. We want to be part of that trend. We want to consolidate that. And the W-2 channel allows us to purchase those books of business. For those outside who want our scale, our capabilities, and our platform, they can join us through this new W-2 affiliation model.
WM: For advisors who join that affiliation model, are they operating under Osaic's corporate RIA?
ES: Yes, our corporate RIA and ADV.
I would say, this is a relatively independent W-2 model. Meaning, we don’t force everyone into model portfolios or product.
WM: Have you done any of those deals yet?
ES: We brought on a $1 billion team from Goldman Sachs at the end of last year, run by Neal Slafsky, and we’ll have several announcements before the end of this year.
WM: What does the fee-only model look like?
ES: I have another thesis that more advisors will look toward corporate RIAs as a destination. A lot of the movement has been toward independent RIAs where you set up your own ADV. What I’m seeing is a phenomenon that I call a “boomerang advisor,” someone who went out on their own as an independent advisor and is coming back to a corporate RIA. They’re doing that because the regulatory environment is getting more complex, and the technology environment with cybersecurity issues is getting more complex and more expensive. And they would like to leverage someone like ourselves to handle elements of that while they focus on prospecting and their existing clients.
I think there’s a misnomer that if you operate on someone else’s ADV, you can’t grow your enterprise value. That’s not true. A corporate RIA allows you to offload a lot of that heavy lifting to an organization like ours but does not prohibit you in any way from having a liquidity event or selling your business at some point in the future. I believe a lot of folks feel that you have to have an independent RIA to do that and that’s not the case.
Ostensibly, that should allow you actually to be more profitable and get a higher multiple when you do sell or exit at some point.
WM: What are you building out under that affiliation model that you don’t currently have?
ES: We’re very deep on hybrid RIA where people leverage our platform, but there’s always an element of FINRA, or broker/dealer commission, annuity, life insurance. But fee-only means you drop your FINRA license completely, so this entity is different. A different platform, different policies and procedures, and new ADV that Osaic will launch.
You need technology that speaks specifically to fee-only and RIA and not brokerage. We have an integrated technology stack called One Hub. You take out all the commission and brokerage elements of that and rebuild it specifically for an RIA. We’ve also worked on building a team that can service the RIA. It's elements of bringing my past life to this organization in a very pure RIA fee-only environment.
WM: Has the firm consolidated all of its corporate RIA entities?
ES: It’s in the process of doing that, and that’s part of the Journey to One. If you look at our advisory services and corporate RIA, it’s over half our assets. That’s all being consolidated into one channel, the RIA Solutions channel.
WM: Do you have any advisors signed on to that fee-only model?
ES: We have many at Osaic that are helping us road-mapping this and thinking through what we should be leveraging. We have many who are looking forward to dropping their FINRA licenses completely and joining this affiliation model. Osaic's very different now than it was three, four years ago, where now we're competing in a lot of places because of our scale and size.
WM: Which custodian will you use for that channel?
ES: We’ll use NFS and Pershing for custody.
WM: You mentioned earlier that your division would leverage product platform capabilities. What do you mean by that?
ES: There are three really cool product things that we're doing lately. One, I’ve been a very big fan of direct indexing over the last few years, so we’ve increased our product suite. We've just recently implemented Canvas, which is a direct indexing product.
In the last 15 years, people have gone from active to passive ETFs and passive mutual funds. This allows you to have passive but with the tax harvesting and tax alpha. We’re getting an immediate interest and uptick. It’s also a product that traditionally or historically has been reserved for higher net-worth individuals. One of our focuses is to increase our high-net-worth product offerings. I think this checks that box.
The second new product, which I believe is table stakes for RIAs and table stakes for HNW, is alternatives. And we have had a very nice suite of BDCs and REITs. We’re also going to be doing much more on direct alternatives, which speaks more to HNW and UHNW than the more liquid BDC-type alternatives. That’s the second big focus of mine.
And then third, we’re now using SpiderRock, which was bought by BlackRock. SpiderRock allows you to hedge using options and concentrated stock positions. Again, this is speaking more to high net worth, ultra-high net worth. Low cost-basis stock, you don’t want to sell it because you realize gains. SpiderRock puts collars and options around those positions so you can get some downside protection as you think through how to diversify your holding. As we go upmarket we’ll be offering more products like this that really speak to the advisory and RIA marketplace.
WM: For the private equity and private credit strategies, are you using a CAIS type of platform to get access to those?
ES: We do use CAIS. And Lincoln Wealth, which we’re in the process of integrating, it uses iCapital. Both those technologies are soon to be available to all of our advisors.
WM: How will the RIA unit utilize Osaic’s “advantage companies”?
ES: I think this is a game-changer. We own these capabilities. These are not partnerships, these are not rented. First, we own Premier Trust, which is domiciled in Nevada, which is a great situs for trusts. Premier allows our advisors to go upmarket. They do not manage money, so the advisors continue to manage the assets. But Premier Trust provides administrative trustee services. That’s a great high-net-worth advisor need in the marketplace.
The second one is the asset management capability, with Ladenburg Asset Management. Phil Blancato and his team have $7 billion in assets now. They’re one of the fastest-growing asset managers on our platform. This provides a framework for advisors to use. What are our capital market assumptions? How would we position? What do our model portfolios look like? Intellectual capital that’s provided to these advisors that they can then use and leverage. All these things are part of this ecosystem that we’ve created now to speak to high net worth.
The third capability we have is a full-service on-platform insurance provider, Highland Capital. Highland provides our advisors access to complex insurance, annuity, disability and long-term care products, along with ideas on how to best structure these for clients. Many advisors understand that these capabilities round out the holistic wealth management and goal-based approach that clients are seeking in the market right now. We believe these tools allow advisors to think not just about the asset side of their client’s portfolio, but about the liabilities side as well. I’ve also found Highland has been a great partner to our advisors on the prospecting side, evaluating existing plans, suggesting new structures and acting as an extension of the advisor’s team to drive organic growth.
Finally, we also have an investment bank. Our investment bankers have unique insights into different industries and sectors. Some of our advisors have been able to leverage that with either small business owners that are clients to get insights, or just to learn more about what’s going on in industries and sectors.
