Top 5 Ways Indie BDs Can Compete With RIAs

While many IBDs still operate in this fashion, a few have become willing to allow larger-scale practices to launch their own hybrid RIA and to custody with one of the major institutional custodians, like Charles Schwab, Pershing Advisor Solutions, TD Ameritrade or Fidelity Institutional. 

By granting this exception, IBDs can present themselves as a more flexible, cost-efficient and adaptive partner than ever before and, in many cases, prevent attrition to the RIA channel. 

3. Third-party technology

Lifelong independent advisors and breakaway wirehouse teams are accustomed to using proprietary technology stacks made available to them by their broker-dealer or firm. To many, these technology platforms represent ”good enough” solutions and remove the burden from the advisor of having to make costly and time-consuming technology decisions. 

That said, a major catalyst for the growth of the RIA channel has been the ability to pick and choose best-in-class technology vendors that all seamlessly integrate with their RIA custodian and each other. 

In varying degrees, IBDs have opened up their proprietary systems to third-party performance reporting, financial planning, risk and CRM providers so interested advisors can create their own custom technology stack in conjunction with what the IBD makes available. 

The beauty of this is that as technology changes, an advisor can remain nimble and opt for different solutions that likely evolve faster than an IBD’s own in-house systems which are built for the hundreds or thousands of affiliated advisors.

4. Transition to fee-only without repapering

IBDs hold an advisor’s brokerage license and offer an all-in-one platform for both advisory and transactional business. For advisors who operate a hybrid business model, an IBD might make sense. 

Still, with the rapid shift toward advisory revenue at the expense of commissions, many IBD or wirehouse practices no longer require a broker dealer. Fee-only advisors can drop their FINRA licenses completely, save on BD fees and FINRA oversight, market themselves as fiduciaries, and operate with additional freedoms. 

Historically, practices that opted into the fee-only world could only consider leaving the BD world behind. Now though, most IBDs are open to allowing advisors who want to migrate to a fee-only construct to do so — thus eliminating the need to repaper, transition or go through any real change. 

5. In-house succession planning and lending facilities

With the average age of an advisor well into his 50s and most practices lacking a succession plan, the industry as a whole — especially the IBD channel with its many solo practitioners — has been struggling with how to make business continuity and proactive planning more accessible and less intimidating. 

Usually, IBD advisors find a succession plan within their current BD, so they can avoid repapering and going through change at a time when they are trying to slow down. 

With that in mind, many well-capitalized broker dealers have created in-house succession planning groups, internal matchmaking sites and even lending solutions for practice acquirers at competitive interest rates — making the possibility of an internal sale that much more likely. For advisors looking to grow via acquisition, these new capabilities offer an immense value-add.

Yet the recent “race to zero” in the RIA custodial world on trading commissions presents a challenge to the IBD space, putting the cost-to-value equation in question. And, it remains to be seen how firms will react.  

While advisors have always seen value in what an IBD can offer, many left the IBD world when the cost of affiliation outweighed the value derived relative to other IBDs or the RIA channel. 

Today, with some of these major strategy shifts, IBDs are proving to be more agile and adaptable to advisor demands and industry trends — and once again, represent a solid option for advisors considering independence.

Louis Diamond is an executive vice president and senior consultant for Diamond Consultants, which focuses on recruiting, M&As and other career moves for advisors. Earlier, he worked as a consultant at Ernst & Young, and in wealth management at Morgan Stanley and UBS.