Schwab’s Tim Oden sat down recently and responded to questions from some of our Twitter followers about advisors making the move to the RIA model. For those of you who sent in questions, thank you for participating.  For those who didn’t have a chance to send us a question, we thought it would be helpful to recap some of the major themes.

• Impact of expiring retention deals on trend toward independence in 2012-2013

As many of the retention packages offered to advisors working within the wire house expire, the move to independence could increase. Whether or not these expiring deals will lead to a wave of breakaways over the next couple of years remains to be seen.  I believe that more money in movement and the increased visibility of the RIA model should bode well in terms of a greater percentage of advisors opting to leave the wire house environment for independence.

• Some unexpected challenges for advisors making a move to independence

One challenge I often hear from new advisory firms, is that they need to make a number of decisions, both big and small, as the owner of a business. While this can be challenging when first starting out, the benefit for advisors is being in charge and having the power to build the future they want for their firm. 

Another concern I hear from advisors is that they fear their clients won’t make the transition with them. This concern is understandable, but clients tend to be very supportive of both the RIA model and of their advisors’ interest in pursuing it. The key is to articulate to clients the reasons for the change and the benefits in a way that is both transparent and tangible.

When transitioning to the RIA model it is critical that advisors follow the plan put in place by the consultants that were hired to help with the transition. Advisors should trust in them since they have been through this process hundreds of times and have a wealth of information from which to offer guidance and advice.

• To fee or not to fee?

Once an advisor makes the decision to move to the RIA model, there a number of subsequent choices they make with regard to commissions, namely do you choose the fee-only RIA format or the hybrid model?

Reasons for selecting one model over another vary, but many advisors that choose the fee-only format make this decision because of the ability to simplify their business model. This includes changing the regulatory framework under which they operate and increasing the flexibility of marketing their business. Others determine that providing commission-based products, such as some insurance-based products, is critical to the ongoing viability of their business. Advisors may determine that these products are critical to the range of services their clients are requesting of them.

• Quality of available products and services for new advisory firms

There is a perception that the quality of the products and services afforded to new, smaller advisory firms might not be the same as those provided to larger, more established RIAs. More often than not, new advisory firms offer the same quality of service and products as their larger competitors. Access to most products is widely available regardless of size in this industry.

One of the benefits of the continued growth of the independent channel is the broad array of products and services that have become available to advisors choosing this path. Many custodians offer services in areas such as technology, research, money managers, and other products and services. Additionally, third-party providers have emerged with services that can be easily integrated into existing custodial platforms and businesses. Today, RIAs have the ability to customize tools and resources to meet their needs.  Competition for their business is such that advisors have much greater access to best-of-class products and services.

 

For informational purposes only. Schwab makes no representation about the appropriateness of this information for any given situation. This information is not intended to be a substitute for specific individualized legal advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with your legal counsel.

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