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Schwab Advisor Services Publishes Hybrid-Practice White Paper

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Advisors looking to better understand the hybrid practice model that combines traditional brokerage and fee-based advisory businesses can now reference a Charles Schwab Advisor Services white paper, released Thursday, that outlines what advisors need to know.

Schwab’s white paper, “Understanding the Hybrid Practice – Considerations for Advisors in Transition,” comes at a time when a growing number of advisors are moving to the registered investment advisor (RIA) model from the independent broker-dealer (IBD) space.

“An increasing number of advisors transitioning to independence are selecting a hybrid practice model for their business,” said Nick Georgis (left), Schwab Advisor Services vice president, in a statement. “In fact, more than half of the advisors that went independent with Schwab in 2009 and 2010 established a hybrid practice model, primarily for the flexibility to offer a broader set of products and services to clients while maintaining multiple sources of revenue. And we see this trend gaining momentum with the number of transitioning advisors choosing the hybrid model increasing about 10% year over year.”

Specifically, the report focuses on trends driving growth in the hybrid market, strategic considerations in choosing a hybrid practice model and the economics of being a hybrid advisor. The report also outlines two different hybrid practice models and how these two models affect a firm’s services for clients.

These include the “semi-captive” hybrid model, in which an advisor joins a corporate RIA of an independent broker-dealer and the “dually registered” hybrid model, in which an advisor starts or joins an independent RIA firm.

San Franciso-based Charles Schwab provides custodial, operational and trading support for approximately 6,000 independent RIAs. In 2010, Schwab Advisor Services saw 163 advisory teams transition to independence, representing $12.6 billion in assets under management. A growing number of advisors in transition to the fully independent RIA

model are coming from the IBD channel as they seek greater flexibility and move a larger portion of their business to an advisory-based model.

The Understanding the Hybrid Practice report notes that growth in the dually registered hybrid model is “particularly high” and adding to the momentum of advisors transitioning to independence. Cerulli Associates research shows that from 2004 to 2009, net headcount at dually registered hybrid firms grew at a compound annual growth rate of 14.7%, nearly three times that of RIA-only firms. During the same period, headcount in nearly all broker-dealer channels experienced flat to negative growth.

Advisors Schwab interviewed for the white paper cited a number of reasons for choosing a hybrid practice model:

  • A broader set of offerings for clients with differing needs, such as clients in an asset de-accumulation phase with more need for guaranteed income products
  • An expanded selection of alternative investments, structured products and private placements
  • Access to different client segments such as corporate retirement plans that need brokerage products
  • Preservation of income streams from legacy brokerage business
  • Flexibility of products and services provided to clients in a rapidly changing industry
  • Ability to grow by attracting other hybrid advisors in transition to join their firm

 “Ultimately, the decision to adopt a hybrid practice model and determine which flavor is the right one comes down to an advisor’s business philosophy and objectives,” Georgis said. “Once things like investment approach and mix of investments, desired revenue model, and ideal client profile are in place, an advisor is in a good position to determine the right path to take.”

Read about how Schwab Advisor Services saw record M&A activity among RIAs in 2010 at

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