‘RIA-ization’ Transforming Advisor Industry

When it comes to the financial advice business, “The industry is going through RIA-ization,” stressed National Financial President Sanjiv Mirchandani, during a breakout session at the Financial Services Institute’s OneVoice 2015 event in San Antonio on Tuesday.

“The wirehouses really are managed massive RIAs, and Schwab (SCHW) too is starting to look like one,” the executive explained.

The reasons behind this “megatrend,” he says, are straightforward: the need for better — or at least more manageable — control, compensation and compliance.

“You want to sell the products that you want to,” Mirchandani said, “and not firm products.”

Advisors also continue to seek ways to move from traditional compensation to a model in which they can have equity ownership, he notes.

As for compliance, “The SEC is a kinder and gentler regulator, so then you go fee-based … Regulatory arbitrage drives this,” Mirchandani explained.

This gives independent broker-dealers a lot of opportunity. “You can market your corporate RIA more aggressively to folks of smaller size, who cannot run their business as they first thought,” he noted.

These operations are “ripe for restructuring,” and IBDs should critically measure their “return on compliance” — or ROC, the National Financial president says.

Not all IBD execs are as fervent about the RIA-ization trend, especially when it comes to advisors and their own RIAs.