Independents, open sandbox

I was having a discussion the other day with an up-and-coming advisor that is looking to transition their practice to the #independent / #RIA space in the next three to four years. During our conversation it came up about how there are so many different options and styles of which the advisor was not aware. As we were talking through the different transition opportunities, I wanted to share some of the different styles of Independents, RIAs and independence that are out there.

Two Channels, One Firm

As the #RIA space has continued to grow many large wire houses or traditional style investment firms have started opening up a second “channel” creating two unique advisor paths, an employee/W-2 Advisor path and an #independent path. There are benefits to both the advisor and firm when they do this. First, it enables the advisor to transition from wire house to being an independent, build their own brand, receive a higher grid rate, and not have to “re-paper” their clients since they will still be “householded” at the same firm. The benefits to the wire house are two-fold, they get to keep the advisor’s practice assets on their books while reducing some of their overhead costs. The cons depend on the firm itself; some have reduced benefits on their independent channel (particularly in regard to 401k, profit sharing, and healthcare premiums) or require the newly independent advisor to pay for a lot of the previous resources that were provided gratis by the firm occasionally including “platform fees” for the use of different fee-based products. Additionally, firms may have production requirements for advisors to transition channels or place additional “handcuffs” on the advisor. An independent channel within a wire house can be an amazing opportunity or it can add additional stressors. KNOW all the ins and outs! At #MPG we can help navigate this process.

Open Sand Box

When many advisors think of going independent and forming their own #RIA this is what they think of, their own firm with their brand in bright lights above the door. In previous articles we discussed some of the pros and cons of owning your own business/practice. This choice is great for those advisors who have a specific vision on what products and services they want to offer (fee-based vs transactional, individual securities vs funds/SMAs, etc.). At MPG, we work with many boutique RIAs in multiple cities. Each one has a unique style that works for them and different requirements that they look for in partnering with transitioning advisors. The great thing about this form of being with an independent firm or starting an advisory practice is that the only limitations are the advisor’s imagination and vision. The drawbacks are that the advisor may have to pay for (or at least contribute to) staff salaries, business supplies, etc. An advisor that MPG helped create their own RIA likened it to being given all the pieces to a Ferrari but having to build it yourself.

The hybrid approach.

With so many different choices can an advisor get some of choice A and some of choice B? Yes, of course! Larger independents have different “officing” programs that allow an advisor to go independent and join an existing office providing immediate structure while also allowing the advisor to build their own practice. These larger independent firms usually have resources available that are more like those of a large wire house and allow advisors to share in an “office grid rate” based on the total production of the office rather than just their individual production. Usually there are support staff already in place that the advisor will share in paying salary and while the grid rates are definitely higher than at traditional brokerages, they may be slightly lower than going the pure RIA path. Using the Ferrari analogy from above, this path is like getting the pieces to build the Ferrari and having a mechanic available to help you build it, but a mechanic that you must pay.

With so many variations of advisory independence how do you make the best choice? That’s easy, the first step is reaching out to #MPG so we can help you learn about all the options available but also learn about you and what is best for you and your practice so that you can make the best choice.

#LPL #RaymondJames #Ameriprise # Cambridge #Commonwealth ?