An Independent Advisor Finds His Freedom

How assessing the alignment of his career goals and business model led this advisor out of the IBD space and into the RIA world

Jeff Ivory was the Principal of a $120mm predominantly fee-based practice with LPL Financial in Bloomfield Hills, MI. Along with his staff of 4, he provided truly comprehensive financial planning services to a high net worth client base. In order to gain scale, marketing assistance and to leverage shared compliance and operations, Jeff sat under a local Office of Supervisory Jurisdiction (OSJ).

Jeff was independent for a reason: He wanted full discretion over how he served clients and how he operated his business. Based on its scale and truly client and advisor-centric model, LPL was an easy decision when selecting his independent broker dealer (IBD) 10 years prior. After some time, however, Jeff began to realize that LPL was no longer the best place to service his clients, grow his business and ultimately leave his legacy.

The Frustrations

The IBD model has served a great purpose within the financial industry for years. By allowing advisors to own their business, self-brand and take control of their financial destiny, IBDs are often a breath of fresh air for breakaway brokers and entrepreneurial spirits. Advisors are all the happier to share a percentage of their revenues with their broker dealer in exchange for support in compliance, operations, technology, investments and practice management. While advisors who sit under the IBD umbrella are afforded a great deal of autonomy and support, there are some instances where a business can evolve out of the IBD model.

Jeff’s practice was no exception. LPL had served him well for 10 years, but Jeff had a burning desire to build a truly independent and bespoke enterprise. While there is no such thing as perfection – and the grass is often not greener at other firms – Jeff had a 4-prong plan he was unable to execute under the status quo:

• Serve as true fiduciary – By definition, advisors sitting under a broker dealer operate in accordance with the suitability standard as opposed to the fiduciary standard. Although Jeff always acted in the best interests of his clients and thought of himself as a true fiduciary, he viewed the product-driven LPL model in direct conflict with the advice and goals driven practice he always aimed to build. In Jeff’s mind, a true fiduciary separated product manufacturing, advice and safe asset custody.
• Customize technology, compliance, and operations – When Jeff started his career 10 years prior, LPL’s plug and play model put him into business overnight and removed much of the heavy lifting associated with building an independent business. He was content paying 10-15bp’s in exchange for home office supervision and middle office support. Today, however, LPL’s proprietary technology set and “one size fits all” approach to compliance stymied his vision of delivering best in class service to clients. As Jeff looked to scale his business he knew there were more sophisticated and flexible CRM, financial planning and aggregation software on the open market, and that the legal and compliance functions could be outsourced.
• Recruit and acquire – As a true entrepreneur with the vision of creating a national leading financial planning organization, Jeff was never content with the status quo. While his staff of 4 supported his business phenomenally well, he always saw himself leading a force of advisors that could utilize the processes, systems and best practices he had developed over his career. For 4 years Jeff had unsuccessfully searched for advisors to recruit and acquire. While there were thousands of targets within LPL, there was intense competition from larger and well-capitalized OSJs and independent businesses. Additionally, Jeff’s efforts to attract top advisors from other IBDs, wirehouses and RIAs came up short, as this would require changing one’s BD affiliation.
• Maximize enterprise value – By leveraging an existing infrastructure and effectively sharing services, independent reps (especially those under an OSJ) save time, frustration and capital. This is done, however, at the expense of creating a sustainable business that can operate without the support of an IBD. While Jeff was in his early 40s and had no intention of selling his business, he was a savvy businessman who would one day want to take some chips off the table at a maximum enterprise valuation. Jeff also knew from industry colleagues that sophisticated buyers from the private equity, RIA and hybrid RIA worlds typically looked outside an IBD thus limiting the pool of prospective buyers and suppressing market valuation.

While Jeff could continue to make a decent living and grow his practice by staying in his seat, his goals were simply incongruent with his current environment. Were Jeff’s frustrations attributable to LPL, or was it more the IBD model in general? To help him think through these questions (and many more) and to get better educated on the waterfall of possibilities, Jeff sought us out for consultation and guidance.

The Search

Based on our understanding of Jeff’s goals and objectives, together we created a roadmap that would seek to get him to where he wanted to be while paying credence to his busy schedule. During our due diligence process, we worked to find the model, firm and partner that served Jeff and his team the best, not just for their more immediate goals, but also for the rest of their careers.

Other IBDs – Since Jeff was most familiar with this path and was anxious to see if his needs could be addressed at a different, more boutique broker dealer, we discussed the leading options within the sector. In the end though, we concluded that Jeff’s goals were simply misaligned with this model. While some IBDs excel in practice management and allow for more freedom and flexibility, Jeff wouldn’t increase enterprise value or be a truly un-conflicted fiduciary.

Service Providers – The fee-only RIA and hybrid RIA market has grown exponentially over the last number of years largely because of the support infrastructure that has been born to service these businesses. Models like Dynasty Financial Partners, Hightower Network, and Focus Financial Partners allow for a turnkey and supported path from IBD to RIA (or hybrid RIA) by providing integrated technology platforms, a robust investment infrastructure and “white glove” transition support. While Jeff saw immense value in a service provider, he enjoyed fully customizing his organization’s infrastructure and believed he could hire staff to plug the holes. Additionally, as an independent business owner already, his firm was already completing much of the value-add activities a service provider could offer.

Institutional Custodians – The leading institutional RIA custodians like Schwab, Fidelity, TD, Pershing and Raymond James have all made significant investments in their service models to more robustly support RIAs in providing practice management, integrated technology solutions, a robust investment infrastructure and even help in recruiting and acquiring. While the RIA space has many different connotations, to Jeff it signified maximum freedom, flexibility and control. As an RIA, by leveraging a custodian for his fee-based business and a friendly broker-dealer[1] for the commission business, Jeff could finally begin work on shaping his legacy. Jeff knew after a few conversations with the leading custodians this was the model that would allow for him to be a true fiduciary, customize his business, recruit and acquire, and create maximum enterprise value.

The Decision

After speaking with the leading custodians, Jeff ultimately selected Fidelity Institutional Wealth Services. While any of the custodians could have supported his business, in the end, Jeff believed his clients would resonate most with one of the largest and oldest privately held custodians. And, Fidelity’s leading retirement plan solutions business was a huge value-add. Jeff also made a conscious decision to convert to a 100% fee-based model, thus eliminating a need for any BD. By completing thorough due diligence on many different business models and custodians, Jeff was able to comfortably transition his business and launch his RIA with the best partner for his goals and objectives.

The Birth of Gainplan, LLC

Jeff will be the first to tell you how much effort went into launching his RIA, Gainplan; however, he will also be the first to say it was the best decision he could have made. Before leaving LPL, Jeff’s practice managed $120mm ($100mm fee-based). Gainplan manages over $150mm—even after jettisoning $20mm of commission assets — and grew from a staff of 4 to an enterprise of 12 that focuses on advising young executives. Jeff attributes his remarkable growth to eliminating conflicts of interest, having more freedom and flexibility to service clients, and finding efficiencies through custom technology. Additionally, he always struggled to build out a complete team around him, but under his new value proposition Jeff attracted top advisors who saw the world the same way as he did.

The RIA space isn’t right for everyone. For some, the full backing and support of a wirehouse or IBD is best; however, for those who have entrepreneurial DNA, the RIA space can be the best way to live your best business life.

Postscript

According to Gainplan’s most recent Form ADV, Jeff has grown his firm to more than $239mm in AUM.

Notes

[1] A true friendly broker dealer encourages advisors to operate their own independent RIAs and only leverage the BD for commission business. Since a friendly BD is only compensated for the business that runs through it, the economics are superior to BDs that collect revenue from both fee and commission business alike, like an LPL.

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