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‘RIA-ization’ Transforming Advisor Industry

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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.

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“IBDs with corporate RIAs … can educate advisors to advantages of having their own RIA. But we are indifferent,” said Scott Curtis, president of Raymond James Financial Services (RJF), the firm’s independent advisor channel. 

“At RJFS, most advisors use our corporate RIA for fee-based work, and we do not see that number changing much,” Curtis noted.

Advisors hear stories about RIA audits “and all the work involved with audits, which starts to scare them,” he adds.

“Unless there are some really specific things that we do not allow as an RIA, most advisors decide that [having their own RIA] does not make economic sense. Of course, as Sanjiv described, there are other reasons to do so.”

For Tom Daley, CEO of the Advisor Center and an ex-LPL Financial (LPLA) executive, IBDs have a lot to gain by educating advisors on the specific costs of RIA options.

Advisors want to know what value is created by using a corporate RIA, Daley says, “and does it translate down to the individual advisor.”

As more teams emerge and the industry’s fee-based focus increases, will RIA pricing “evolve with where [advisors] are going?” the expert asks. “They do not want to change firms, unless they do not see [their current firm] evolving with them.”

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