As the interest in attaining freedom, flexibility and control continues to surge among advisors, new independent models are being born at a rapid pace to accommodate them, providing more choice than ever before.
For example, there are new models that provide upfront capital and enhanced support to breakaway advisors. Also, established independent broker dealers are retooling their offerings to be more attractive and competitive. Plus, over the last few years an entire cottage industry of support has developed in the RIA space.
Yet with more optionality often comes greater confusion.
Many advisors who once thought independence seemed like a bridge too far are now looking at the wide variety of options available today and are wondering what model might be the best fit for them.
To help provide some clarity, we often instruct advisors to ask themselves five essential questions about their business and goals, which are outlined below.
1. Is my business more advisory or commission-based?
As a starting point, look at the composition of your business. A heavily commissioned business is best served by an IBD, while one that is advisory can be well served in either the IBD or RIA channel.
2. Do I want maximum freedom and control or am I OK with “independence with guardrails”?
An RIA has complete control to “shop the Street” for the best prices and products, the freedom to use marketing and social media unencumbered and the ability to freely engage in outside business activities. It’s the path for those who want to act as a fiduciary, completely unrestricted and unconflicted with maximum freedom and control.
Conversely, an advisor at an IBD must adhere to the BD’s compliance guidelines and investment menu, as well as the regulatory parameters of FINRA. Advisors who choose an IBD view these guardrails as valuable protections and believe that the resources and support an IBD provides outweighs what they view as minor limitations.
3. Do I want a turnkey independent option, or do I want the ability to fully customize?
IBDs offer a suite of resources — everything from an integrated technology stack, a fully-vetted investment platform, marketing, compliance support and practice management — all under-one-roof, making an IBD a seamless solution for breakaway advisors. Plus, top IBDs are developing new models, designed to support RIA and RIA-hybrid businesses.
In the RIA space, you have total control over your business with no restrictions, other than remaining compliant. This allows you the opportunity to customize every aspect of the business to suit your vision and the needs of your business and clients.<br><br> The freedom to build and operate the business exactly as you envision can be exciting or totally overwhelming — which leads us to the next question to consider.
4. Do I want to use an RIA service provider or launch my RIA directly with a custodian?
The advantage that an RIA service provider offers is a team of industry veterans that guide breakaway advisors on every aspect of launching an RIA — including technology and custody choices, to replicating investments, building out compliance, HR and benefit programs, negotiating real estate and transitioning assets.