When Is the Right Time to Consider Changing Broker-Dealers?

When Is the Right Time to Consider Changing Broker-Dealers?


Changing Broker-Dealers

By: Charlie Latimer, Director of National Recruiting
Published December 7, 2016

Executive Summary: The right time is now to do your due diligence. Your analysis will likely lead you to the RIA and IBD channels. You need to understand where those two models converge to create the best advisor model in the industry.

The post-election markets are moving in your favor, volatility is low and consumer confidence is at the highest level since 1997. Almost too good to be true, and surely the picture will change at some point. While it lasts, the current environment means that your clients are generally happy and your phone isn’t ringing off the hook with needy psychological therapy calls. Sure, there are seasonal items like RMDs and IRA contributions, but you have time on your side (don’t be complacent!).

With less distraction, the time is now to think about your practice and where you want to be for the next leg of your career. Due diligence on the various advisor channels, affiliation models and broker-dealers can take months to figure out when you’re busy, but with a concentrated effort, it can be done in a few days. If your time is hard pressed, you can hire a consultant (such as Advisor Growth Strategies or FineTooth Consulting) to take this project on for around $20k. As an alternative, you can whiteboard it out yourself. Another option is to just call me as I’ve been doing this for a long time!

That said, here are the top things advisors should be thinking about when considering changing broker-dealers:

  • What channel provides the greatest independence?
  • What channel supports the best client service delivery and experience?
  • What channel provides the greatest profitability?
  • What channel provides the best technology?
  • What channel provides the best compliance experience?
  • What channel provides the greatest flexibility to structure a practice?
  • What channel provides the most options for M&A and succession?

Figuring out the above will probably take about 12 hours if you’re lucky, or you could just take my word for it that your analysis will lead you to the RIA (Registered Investment Advisor) and IBD (Independent Broker-Dealer) channels. So, what next?

I’ve already blogged here about why the RIA model is hands down the best model but, I’ve always maintained that it’s better to join one than to start one, especially if you need a hybrid solution. And by “hybrid RIA,” I simply mean that you can conduct both fee and commission business. That is, hybrid RIAs typically work with a custodian for their “fee-based assets” and a single “friendly broker-dealer” for their brokerage clients.

The rub here is that it’s operationally challenging to run a hybrid RIA because you’re working with two clearing firms and two sets of service teams and platforms. Also, if you take this course, you’ll need to take on the role of Chief Compliance Officer, and I can assure you that compliance is where your operational inefficiencies will cost you great aggravation, time and resources (even if you outsource it).

But what about the IBD model? Of course, the other option at hand is affiliating directly with an IBD, and while it’s not a bad one, you will likely be leaving money on the table and may not get the best service or the compliance experience you deserve.

The Case for Joining a Hybrid RIA Model

So, here’s one path that further narrows the field to a single option, where the RIA and IBD models are inextricably merged to form the best value proposition in the industry, “the joining a hybrid RIA model.” It’s a mouthful, but I’ll explain.

In this model, you can expect to enjoy all the best that the RIA model has to offer – independence, economics and operational efficiency, service and technology – with the support of an existing RIA that sits on an IBD chassis and takes care of all things compliance, simplifying operations.

Welcome to our model! Firms like ours do exactly that and much more. We’re an $11.5 billion RIA that sits on LPL Financial’s hybrid platform, managing our advisors’ compliance, saving them time and simplifying their operations. Advisors who join us become Investment Advisor Representatives (“IARs”) of our RIA, are free to “DBA” their practices for branding and may use our custodial relationships with Schwab, Fidelity, TD and Pershing when needed. With outstanding economics, it’s the value play advisors seek but many don’t know exists.

Our advisors are truly independent and not captive by any measure. They’re free to change their model and how they affiliate at any time. Our model stands on its own, and it’s why we’ve recruited an average of 80 advisors per year over the past four years. As I write this, we’ve recruited over 70 advisors year to date from many different broker-dealers. Our experience is immediately felt by our advisors in transition, who are repeatedly impressed by the number of client accounts we can move in 30 days.

I’ve only scratched the service of what Private Advisor Group can bring to the table. Give me a call and I’ll help you understand all your options in the marketplace and where we fit in. No expectations! Either way, use this time wisely to do your research.

“You are not stuck where you are unless you decide to be.” – Wayne W. Dyer