It’s becoming the talk of the town—well, the financial services industry anyway—why are so many financial advisors leaving broker-dealers to launch or join an RIA? It might not be what’s best for every practice, but it feels like there’s something happening here that other financial advisors might be interested in learning more about. With our expertise in advisor transitions, we’ve known for a while that an RIA is an attractive option, but to better understand the current trends pushing advisors to make this shift, we traveled to the InvestmentNews RIA Summit held at the Marriott Long Wharf Hotel in Boston. We left the conference with the impression that there are a lot of misconceptions across the industry that have held back advisors from leaving their broker-dealer behind and shifting to the RIA space. We heard from industry experts across custodians, tech providers, and other companies that make up what we’re calling the “RIA Support Ecosystem.”
If you’re a financial advisor considering joining or launching your own RIA, it seems like the RIA space speaks a different language and can oftentimes feel like too big of a change for some advisors. So, if you’re thinking about joining the RIA space next year, these are the biggest misconceptions financial advisors should carefully consider as you think about changing firms:
No. Many financial advisors establish a relationship with a custodian to hold their fee-based business and also partner with an “RIA-friendly broker-dealer” to access commission-based products. Over the past few years, more and more broker dealers are starting to allow their advisors to do business this way. Advisors end up registering their practice with both FINRA for their commission business through the broker-dealer and the SEC for their fee-based business and oversee all account types using technology to aggregate account information across multiple firms to more easily service client assets.
No. By working with an experienced RIA securities attorney, advisors can simultaneously conduct their normal business and also develop a strategy to breakaway from their current firm. This strategy includes using the law office as an incubator to establishRIA and hold the new RIA, which will then transition over to the advisor after they resign from their broker-dealer. The other option is to consider “tucking in” to an existing RIA that can help you make the transition. Later on, you can reevaluate whether to start your own RIA or stay within another.
No. Depending on the annuity contract, advisors have the ability to appoint intermediary firms like DPL and Halo as Agent of Record, thereby redirecting the annuity trails to a new agent of record, and simultaneously establishing a servicing relationship with the firm to be paid a percentage of the trails. It allows advisors to appoint a trustworthy third party on the contracts, effectively receive compensation on the assets, and still have a data feed to provide advice on client annuity assets.
No. In large part, the stigma around annuities revolves around high commissions, which force annuity carriers to require high ongoing costs to the client and impose surrender schedules that create problematic liquidity issues. Over the past few years, more annuity carriers have been restructuring their contracts without commissions and lower ongoing fees to allow advisors the flexibility to wrap annuities into the billable assets. In many cases the overall cost to clients can be lowered by 50 - 100 bps.
Not necessarily. When establishing a new RIA, you have the option to participate in the broker protocol agreement and set up the practice to make your transition a protocol move. While not all advisors need to establish themselves as a protocol member, there are many benefits to making for a smoother transition. If you’re looking to join an existing RIA, consider finding one that’s already a protocol member so that it’s not only easier to join, but it’s also easier to transition away from if your situation changes.
If you want to have a confidential conversation about what some of your other reservations are about leaving your broker-dealer and making a change to launch or join an RIA, I’d love to listen to your concerns and help you navigate the process. Let’s set something up and get the conversation started.