What swayed me to the hybrid cause after an early indoctrination as a 'pure RIA' disciple

The notion that it's just a layover on the way to to a more exalted state of securities-license-dumping, fee-only purity should be reexamined

Wednesday 12.12.12 by Guest Columnist Abby Salameh

Brooke’s Note: Abby Salameh works for Fusion Advisor Network, owned by NFP, that is largely building its future on facilitating the hybrid RIA model. See: With Schwab [and maybe Fidelity] as custody partners, NFP is positioned to make a run at the hybrid market. You might expect her to say a few good things about the hybrid model. But she also knows that she is writing to a discerning audience about all matters RIA here at RIABiz and so she can’t exactly pull the wool over anyone’s eyes. In other words, she’s opened herself to some very dissenting comments or counter-columns. Let’s call it even. Aside from Abby’s exposure to both camps, this article benefits from the kind of agitated introspection that can only occur in the human mind when stuck on an extended layover in the Atlanta airport en route to New York.

As I write this, I am in the Atlanta airport. It was not my final destination, but just a layover; a few hours in between where I had just been and my final destination back in New York. I have been out visiting many of our advisors this week and like most of you, when I travel, I get the opportunity to catch up on my reading. On this trip, I brought with me one of our new white papers to read “Multi-Discipline Practices: The Business Model of the Future. Today.”

The white paper’s premise is based on proving that advisors who use multiple asset classes, investment products and investment solutions for their clients are more successful. According to the white paper, these advisors’ clients are more satisfied and the advisors who practice using multi-disciplines attract clients with more complex financial needs. The advisors surveyed for the report derive revenue from investments, insurance products, retirement plans assets and in some cases, benefit plans. They are “hybrid” advisors; mixing fees and commissions depending on the needs of the client. See: Fidelity elevates hybrid offering by giving RIA technology to thousands of IBD reps.

Non-stop flight to RIA-ville

For most of my career, I believed that the fee-based approach to charging for financial advice was the right way to structure an advisory practice. While the fees based on a percentage of assets under management method has its flaws, it always seemed to me to be a bit more honest in its approach to charging for services rendered vs. commissions.

It removes the conflict of interest. When I worked solely with registered investment advisors in my years working for TD Ameritrade, it became even more apparent to me that this was, indeed, the right way to service the investing public. I believed at the time, that advisors should only charge fees; they should give up their licenses if they wanted to be true to the cause. I jumped on the bandwagon of fee-only advisors in their pilgrimage to enforce the fee-based approach as the ethical approach. I carried that flag for many years. See: Should I dump my securities licenses?.

Later on, as a consultant, I helped publications and custodians launch going independent workshops and programs. They all had the same end goal in mind; to take the “captive” advisor to “freedom” by converting them into RIAs. We showed charts and graphs at these workshops showing the spectrum of going from an employee model to an independent advisor and it always ended with the RIA. We always highlighted how an advisor goes from one end of the spectrum as an employee to the absolute other end as an RIA. There was no layover, or may be a small layover, in between.

How pure is 100% pure?

In the midst of this all, I met many advisors who were uncertain about letting go of their licenses. At the time, I still thought they were only holding on to them for commissions or brokerage products they didn’t want to lose income on. I recall one advisor, Greg, who was thinking about leaving his insurance B-D. He told me how he knew he wanted to have greater control over how he invested for his clients and how he ran his business. He just wasn’t sure he was ready to become a pure RIA (pure is often used when referring to RIAs. I am not sure why).

It was around that time I started doing some individual consulting with advisors that my belief system started to change. Most of my clients started their careers in the insurance world or in the wirehouses. They sold insurance or products to their friends, family members and anyone else that would open the door. They worked hard and they succeeded. At some point, they decided they would be able to help their clients better if they could also provide true financial planning and investment services rather than just piecemeal products for a commission.

They earned their designations and eventually left their firm for greener pastures and more options. They were no different than the many RIAs I have worked with in the past. They wanted freedom. They wanted the option to invest for their clients without any conflicts of interest. They wanted a wider selection of investment options, better technology, the ability to create a legacy. But, they did not aim to move to the absolute other end of the spectrum as an RIA. And I now understand and admire why.

A timely move

Let’s use Bill as an example. Bill is an advisor based in the Midwest. He, too, came from an insurance broker-dealer and has many local business owners as clients. Bill has been with Fusion Advisor Network for 10 years. He has never given up his licenses and works under our NFP corporate RIA. He is extremely successful.

Bill believes in a comprehensive approach to financial planning; looking at all the needs of his clients and planning accordingly. Because he still maintains his licenses, Bill has the ability to provide many solutions for his clients. In fact, a few years ago he did a comprehensive plan for one of his clients — also a dear friend — that included life insurance and investments. See: Not without criticism, TD Ameritrade opens an 'insurance agency’ for RIAs that want to provide annuities.

Bill’s client and friend was apprehensive about the life insurance, but Bill showed him why he needed it and how it would help in the event of an unforeseen incident. Lo and behold, not six months after the life insurance policy was implemented, his friend died unexpectedly. It was devastating. Bill had a family with young children. But, what made a huge difference in the lives of the family was the policy that Bill had implemented.

The final destination

There are many advisors like Bill. Advisors I work with predominantly provide asset management and financial planning based on fees but also provide other commissionable products when the shoe fits. It is never with the intention of boosting their commissionable income and always with the intention of doing the right thing for the client.

Of course, clients can achieve this same level of comprehensive services by using an RIA that refers them to another professional to handle the insurance. But, that’s not a one-stop-shop for the client. He or she then has multiple advisors for multiple solutions. In addition, there is the intrinsic satisfaction that hybrid advisors receive from personally handling all of the solutions and truly being holistic.

I used to think the hybrid advisor was a mere stop in the road; a place to rest and figure it out before continuing the journey; and that eventually all advisors would continue along the spectrum to RIA destination. But, I now believe this model is here to stay. It is a final destination. See: 5 Reasons why the hybrid RIA model may be a bigger deal than ever.

Abby Salameh brings to Fusion Advisor Network 20 years of experience working directly with independent advisors. Having started her career at Sanford C. Bernstein & Co. Inc. in 1992, Abby went on to help launch InvestmentNews for Crain Communications Inc. In 2002, she joined TD Ameritrade to head the marketing efforts for its institutional services. More recently, Abby has been providing strategic and tactical marketing consulting for leading industry firms, including large broker-dealers and independent advisors. She joined Fusion Advisor Network in September, 2011. See: What exactly is Fusion Advisor Network and who did it draw to Las Vegas last week.

Abby Salameh

Fusion | NFP | insurance