In a recently released Red Zone Marketing survey of 641 respondents across 50+ broker-dealers, banks, and Registered Investment Advisors (RIAs), 83% of professionals in this field expect to return to a normal, in-office schedule before the end of the year, but only 49% have a plan in place to do so. Additionally, two-thirds of the participants affirmed that they are confident they can attract new business through virtual meetings. Could this environment engender a strategic ‘breakaway’ progression for large firm advisors?
Growing numbers of RIAs are already moving away from the traditional broker-dealer model and becoming independent advisors to better meet client needs. Becoming independent typically offers the freedom to control fee structures and gain access to a more extensive suite of investment products. However, with increased flexibility comes higher costs. In this edition of Advisors in Focus: Examiner Edition, we look at some of the pros and cons of becoming an independent RIA.
Advisors often move to an independent business model after spending a few years at a regional brokerage or a major Wall Street bank. Many of these individuals have already developed a book of business and have amassed considerable assets under management. The main reasons cited for going independent include the ability to meet client needs better, the opportunity to keep a more significant percentage of fees or commissions, and the freedom associated with running a small business.
The downside of going independent is that the advisor will lose the support of a larger firm: office space, training, regulatory or legal backing, and sales & marketing help. Indeed, becoming an independent advisor is a big step; the advisor often transitions from an employee to a small business owner. A small business owner, in turn, has a host of other responsibilities such as managing expenses, deciding on the best business structure (LLC, S-Corp, or sole proprietorship), and additional tax filings.
At the same time, several brokerage firms—including TD Ameritrade, Schwab, and Fidelity—have developed trading, clearing, and account services designed explicitly for independent advisors. Changes to the fiduciary rule, which demands that advisors focus on client needs above their own, also seem to have motivated some advisors to reconsider working for firms with proprietary products. Working independently means that advisors can seek out those investment or retirement products that are best suited for their clientèle.
With freedom and flexibility, independent RIAs also face greater responsibilities associated with running a small business. For those with an existing book of business and substantial assets under management, the ability to keep a higher percentage of fees or commissions often makes the transition worth the effort. The vital underlying questions to ask yourself if you’re considering such a move: will my clients benefit from an independent model, and will I find greater job satisfaction by branching out on my own.