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Whether you’re breaking away from a wirehouse and going independent for the first time or looking for a greater degree of balance, there are opportunities for advisors to truly manage their practice the way they choose.
Independence in the financial advice industry has become quite a broad term. It can mean anything from plug-and-play into a registered investment advisor and selecting the technology and service model that best suits you, to just not being part of a broker-dealer but largely feeling as if you never left.
In the latter circumstances, advisors have marketing services made available to them . However, unless they’re the squeakiest wheel or largest subsidiary, they’re apt to get canned and bland content that isn’t specific to the population they serve and told they should like it. Those advisors are also often chained to using one particular kind of portfolio management or client relationship management (CRM) system, because that’s what the mothership has approved. That may technically be “independence,” but it’s quite different from the Merri am-Webster definition of independent, which is “not subject to control by others.”
That’s why new open-architecture RIAs are cropping up — to truly give advisors the flexibility to their practice the way they’d prefer with the support that they need to do so. Comprehensive support is available in many flavors, so advisors can pick and choose what would be most meaningful for them.
At this critical inflection point — when there are approximately 300,000 financial advisors but the average age is 56 — the industry needs to be as innovative as possible to attract more members and retain existing talent.
Painting your own sunset
For advisors who are nearing the end of their careers, this may be among the most vital times to be practicing the way they prefer. Advisors who have built a practice that accommodates their lifestyle should be able to live that out how they’d like. There’s no need to add undue pressure at this time in an advisor’s career.
Removing the burdensome basis points tax that RIAs pay for support services can help advisors embrace the kind of practice they desire to have.
Freedom is also in the green
The concept of financial advisory independence is also related to how much revenue an advisor can retain versus paying to be part of their RIA. Numbers range from advisors keeping practically everything, to maintaining about half of their revenue — and everything in between.
This is an area that deserves a concerted amount of deliberation before advisors change firms. Plenty of advisors are perfectly OK with forking over a hefty chunk of their earnings to receive what they deem as an acceptable amount of support services.
On the other hand, some advisors don’t appreciate that their revenue doesn’t grow as they increase their clients and assets because of the “tax” that is being paid to the RIA. Advisors need to understand what they’re paying for, the quality of those services, and why the expenditure makes sense. Then and only then can they make an educated decision about their future employment.
As an industry, it would be helpful for advisors to see the continuum of flexibility that they can be afforded so they can determine where they fit on the scale.
Andrew J. Evans is the founder of Rossby Financial, an open-architecture RIA.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.