In the Summer of 2021, we shared a popular insights post on business structure considerations for financial advisors that we’d like to revisit. We’re of the opinion that knowing your preferred destination, or narrowing your options earlier in your journey, helps you to navigate your business transition from a position of strength.
I’ve pasted the body of the article below for reference, as the structural decisions are still very relevant, but I did want to add some perspective on a few trends that are influencing our profession today.
The Schwab/TD Ameritrade merger has been big news for the past several years and has served as a catalyst for many advisors to re-evaluate their affiliation options and strategic partners. Talent movement is natural during any major merger or consolidation and impacted advisors should seek enhanced support like we offer as a multi-custodian wealth management firm. After all, a true partner should be looking for and communicating opportunities to minimize platform integration challenges. We’ve also seen increased competition among custodians as these are two major players consolidating, which means personalized service, competitive fee structure, and economies of scale are all crucially important.
We find that entrepreneurs frequently enjoy growing their businesses and spending time with clients, not necessarily in running a regulated entity such as their own RIA. Consequently, we continue to frequently speak with RIAs who are interested in “tucking in” and leveraging our infrastructure and scale, which allows them to de-risk and to create capacity and efficiency. We’ll share more information on this soon, but one of our tuck-ins from last year just came off their most profitable year in business to date.
Finally, succession and/or liquidity needs continue to cause advisors to explore different business affiliations that could potentially meet those needs. Our Advisor Alignment and Equity Program is the solution that we’ve developed, and it presents an exclusive opportunity for advisors to invest in our collective success, with the added benefit of engaging in natural discussions around succession and the life cycle of their businesses.
With that in mind, if you are considering independence, ask yourself which business structure is best for you. There are three potential options to consider: creating your own Registered Investment Advisor (RIA), partnering with an existing RIA, or joining the corporate RIA of an independent broker-dealer (IBD). Each choice has its own unique factors to weigh. Let’s take a look.
Aligning with the Corporate RIA of an IBD:
This option closely resembles the experience of many advisors. By aligning with the corporate RIA of an IBD, you can transition to independent status, owning your own business while leveraging the resources provided by the IBD. From a regulatory perspective, you become a Registered Representative of the IBD and an Independent Advisor Representative of the IBD’s Corporate RIA. Opting for this model allows you to offload certain regulatory risks. However, it also means you are restricted to the IBD’s approved custodian, product set, and technology platform, among other considerations.
Starting an RIA:
For many advisors, starting their own RIA represents the epitome of independence. You gain more control over crucial decisions by establishing and operating a regulated entity at the state or SEC level. This includes selecting custodians, adopting technologies, and choosing the products and services that best serve your clients. It’s an exhilarating prospect. However, starting an RIA also entails developing and managing essential business processes and infrastructure, such as compliance programs, cybersecurity measures, and operations. While not as exciting, these aspects are critically important and require diligent effort, cost consideration, and coordination.
Affiliating with an Established RIA:
In the “tuck-in” scenario, you affiliate as an Independent Advisor Representative of an established RIA, offering the desired freedom and flexibility without the direct risks, responsibilities, and costs of running your own RIA. Many RIAs allow you to operate under your unique brand, select your preferred custodian, build your tech stack, and serve clients in a fiduciary capacity by accessing a broader investment landscape. Established RIAs offer compliance, operations, and service infrastructure, enabling you to operate efficiently and scale your business. Hybrid options are even available for those needing to operate in both brokerage and fee-based environments. Added benefits may include access to a broad community of advisors, growth and efficiency programs,, and succession and liquidity options structured by the RIA.
Deciding Your Path:
When determining which path to choose, it’s vital to be your own advocate and conduct thorough due diligence. Engage in conversations with various firms within the financial advisory profession, including third-party recruiting/consulting firms. Ask the same questions multiple times, using different approaches, to ensure consistency in the answers you receive. Don’t hesitate to admit what you don’t know, as organizations vying for your business should position themselves as consultants and educators rather than mere salespeople. As one of the largest RIA firms in the country, Private Advisor Group has helped numerous advisors transition to independence on their own terms and timeline. We are here to help you explore your options with us.
As a financial advisor contemplating independence, you are faced with important choices regarding your business structure. By carefully considering the alignment with the corporate RIA of an IBD, starting your own RIA, or affiliating with an established RIA, you can align your aspirations, preferences, and business requirements. Remember to engage in thorough due diligence, consult industry professionals, and keep your long-term goals in mind. With the right support and guidance, you can navigate the path to independence and shape your professional journey according to your vision.