Independence Enhanced
By Wendy Leung
How to find support, resources and community in the independent space
Many wirehouse advisors are intrigued by the idea of gaining greater freedom and control over their business, but don’t seriously consider going independent because they think it means being alone in an office bogged down by operations and minutia. The good news is that as the industry landscape has expanded, advisors can easily find support, resources and community in the independent space. Here are a few options to consider:
Super Office of Supervisory Jurisdiction (OSJ): In its most basic form, an OSJ provides compliance oversight for advisors affiliated with an independent broker dealer (IBD). Larger “super OSJs” offer more, including access to scale pricing, enhanced service and extras such as an in-house CIO. Advisors pay an override on their business in order to affiliate. Those that choose an OSJ value the enhanced resources, support and service more than the additional cost.
Service provider: Service providers play a critical role for a breakaway advisor in building an independent RIA, managing the transition and providing the advisor access to a best-in-class platform and technology suite. Whether it is bidding out loans to multiple banks, shopping for top fixed income returns, accessing multiple alternatives platforms or tapping into research, advisors who align with a service provider are part of a community and have access to enhanced resources, pricing and ongoing support for back office and compliance functions. Service providers do not pay transition deals and advisors that choose this model believe that the support and resources justify the cost. Examples of top service providers are Dynasty Financial Partners, HighTower Network and Concert.
Strategic and Capital Partners: Investors in top RIA firms typically purchase up to 40-50% of a firm’s EBITDA. In return, the seller receives cash and equity consideration. Much like the service provider model, the investor typically manages the breakaway/transition process, builds the RIA and provides access to a state of the art platform, technology and scale pricing. Advisors who choose this partnership model value becoming part of a community with other top RIAs, monetizing a piece of the business and leveraging the investor’s capital and deal expertise to drive inorganic growth. Since this model involves selling equity it does not work for advisors who want to retain full control over the business. Focus Financial Partners is the largest investor in the independent space.
Join an independent RIA: Well established RIAs that have created a scalable infrastructure are looking to recruit and can offer a breakaway advisor the benefits of independence, including a higher payout and open architecture in a fully supported, plug and play environment. Smaller standalone RIAs may merge their business into a large enterprise-level RIA in order to offload minutia, and gain scale, resources and bench strength, as well as to solve for succession. The potential negatives are that the advisor becomes an employee of the firm, cannot self-brand and gives up a degree of control.
Quasi-independent: These models provide an advisor an open architecture, multi-custodial platform with no proprietary product manufacturing, delivered in a full-service branch environment. In this model an advisor gives up the ability to self-brand and accepts an employee payout in return for a transition deal that is typically cash plus equity in the overall partnership. Some of the top quasi-independent models are HighTower Partnership, Steward Partners, William Blair and Snowden Lane.
At the end of the day, although the leap from an employee model to the independent space can be overwhelming, don’t let “analysis paralysis” kick in. By defining your vision and specific needs first, you can determine which model is right for you and then rely on your new partner to help you over the finish line to independence.
