Dually Registered Advisors Are More Complicated, But Are The Best Solution For Many Advisors Going Independent Or Considering Starting An RIA

Wednesday, April 20, 2011 20:35
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Dually Registered Advisors Are More Complicated, But Are The Best Solution For Many Advisors Going Independent  Or Considering Starting An RIA

Tags: independent broker-dealers | profitability | registered investment advisors

Pershing and Schwab are promoting “hybrid” advisor affiliation as the next big thing, but independent reps need a lot more than buzz to sign up. Here's some guidance about the hybrid model.

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A decade ago, it was unusual for an advisor to actively pursue a business model in which he is paid both commission and management fees.

 

Back then, the perception was that you were either a commission-only registered representative or running a fee-only RIA.

 

But over the last decade, about 1,400 advisors a year have embraced the hybrid approach, and now the custodians and some independent broker dealers are latching on to the trend and creating systems to promote hybrid practices.

 

In fact, hybrid advisors are common now and it’seasier than ever to bridge the registered rep and the RIA worlds.

 

Advisors who start their own RIA to capture fee-based business and hold securities licenses often say they have more freedom about how they do business. But this also carries some added responsibilities, since you must be dually registered with both FINRA and either the state securities regulator or SEC.

 

One way to make things a little simpler (but give up some of your freedom) is to route advisory fees through a Indepentent broker-dealer's  corporate RIA.

 

The BD then handles compliance on both the fee and transaction sides of the business, which can be convenient for advisors who don’t want to deal with the regulatory issues involved in running your own RIA. But using the broker-dealer's corporate RIA is often not as open as what you could build with your own RIA, and you will have to pay the BD to use its RIA.

 

Between the two poles--creating your own RIA or affiliating with a B-D's RIA -- there are a lot of variations and permutations. Some independent B-Ds, for example, won't let you create your own RIA or will require you clear trades with a particular custodian. Other broker-dealers are more friendly about advisors generating fee business through their own RIA and feeding brokerage commission business to the BD. 

 

Finding the right solution depends on how you want to serve clients and your personal goals for your business. Point is, there are al BDs that are better or worse fits depending on your personal preferences.

 

Another possibility for advisors considering setting up their own RIA is to affiliate with an existing RIA.  Plenty of existing RIAs are looking for new advisors.

 

For advisors who are considering going independent or who are thinking of setting up their own RIA, the hybrid model presents lots of choices and flexibility. But you need to know what you want from your business, in terms of splitting revenues with a BD, the quality of life you are seeking, and the solutions and products you want to provide to clients.

 

I'm happy to post about the different permutations in the hybrid model, but would appreciate hearing from A4A readers about any questions about different tyopes of arrangements with BDs and custodians supporting dually registered advisors. 

 

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