The takeaway at this hybrid mini-summit: Yes you can -- but probably not without some serious backup

March 4, 2013 — 6:32 PM UTC by Dina Hampton


Brooke’s Note: The first line in the RIA-modeling sand of custody could roughly be drawn between Schwab and TD Ameritrade on the one hand and Pershing and Fidelity on the other. Schwab and TD tend to favor the pure RIA model; Fidelity and Pershing more often advocate a hybrid model. That’s pretty much old news, and both sides happily and effectively cross over into each other’s territories. If there’s new territory, it’s with some of the roll-up-like ventures and new modes of outsourcing or completion strategies that are getting some legs. Whatever RIA custodian can establish itself as a best friend of these companies could gain an edge. One way to do that is to promote their more Wall Street-ish models — and that is something Fidelity appeared to do forcefully at this Ritz Carlton-on-Wall Street event.

The first great age of the modern RIA model — when brokers shook free from wirehouses rocked by the 2008 financial crisis to go independent — has come to a close and the second phase of development is under way — one in which tapping into an existing organization with a proven track record for help in running the business is the key to success. See: 5 Reasons why the hybrid RIA model may be a bigger deal than ever.

That, at least was the premise of Friday’s Insights on Independence Media Roundtable hosted by Fidelity Investments at the Ritz-Carlton hotel in downtown Manhattan. The breakfast panel convened with a group of reporters in attendance as part of a two-day practice management conference for 152 advisor clients and prospects that ran Thursday and Friday. It made up for the Oct. 30-Oct. 31 event that was cancelled because of Hurricane Sandy.

The participants were: Mike Durbin, president of Fidelity Institutional Wealth Services Mike Papedis, executive vice president of HighTower Advisors LLC; James Poer, president of NFP Advisors Services Group and senior vice president of National Financial Partners Corp.; Alan Harter, founder and managing director of Pactolus Private Wealth Management LLC; Jim Nagengast, chief executive of Securities America Inc.; and Jason Del Col, senior vice president of advisory services at United Capital Financial Advisers LLC. Moderating the panel was Alois Pirker, research director of Aite Group LLC.

Cross pollination

Harter’s group, Pactolus, works with a handful of high-net-worth families in the U.S. and abroad and is a new client of Fidelity’s. “Our families all know each other,” Harter said. “We cross-pollinate them. A lot of U.S. families are not as sophisticated as foreign families.” See: Why an elite Morgan Stanley Smith Barney advisor jumped ship and plans 10 offices around the globe.

Previously, Harter held senior-level positions at Morgan Stanley Smith Barney. Noting the advantages of independence, he said: [No matter how complex things get] “good day or bad day — guess who’s call it is? It’s yours.” See: How Harter broke away from Morgan Stanley Smith Barney to find new vendors — and found old friends.

Jason Del Col pointed to United Capital’s “Honest Conversations” initiative as a way his firm differentiates its service from the wirehouse model and builds trust with the client. “It makes seeing an advisor a radically different experience — not like going to the dentist.” See: United Capital’s Joe Duran throttles back on deals as he opens an RIA version of Hamburger University. He pointed to an example in which one an advisor made a “house call” and engaged the wife of the client and as a result, gained business from her. “Honest Conversations radically changes the value proposition.” See: United Capital unveils national mass-affluent strategy keyed to a radio program.

Myriad options

“Four or five years ago it was leave the wirehouse and form an RIA,” Durbin said. “Now there are many forms to take. How do you want to get paid? How do you think about your team? There are two or three models, two or three purveyors of models that are new in the last two or three years.”

In that vein, HighTower’s Papedis described his Chicago-based firm’s newly expanded business model as an “omni-channel” aimed at “bringing partnership to a wider audience.” See: HighTower throws open its doors to non-partner firms who want service and/or brand.

The companion literature for the roundtable was a 2012 white paper, “Options for Independence: Working with a Partner,” which included case histories of five advisors who went independent with the use of an outsourcer or strategic acquirer. Examples of options for the newly independent or existing RIA cited were: tap into an existing infrastructure; be a W-2 employee at the partner firm; be a 1099 employee at the partner firm.

Durbin commented during the round table that it is important to guard against confusing the entrepreneurial spirit with wanting to be a small-business owner — the latter role is where Fidelity comes in. See: Viewing RIAs in a new light, Fidelity Institutional shifts from a top-down to a bottom-up emphasis to serve them.

“The more complex [the transactions] the team at a wirehouse [dealt with] the less they know how donuts are made,” said Durbin. “They’re not aware. It’s done every night overnight.”

'Radical independence’

NFP’s Poer remarked that wirehouse brokers that come to his firm seeking “radical independence” quickly realize they can’t do it all and soon appreciate the advantages of NFP’s providing back-office capabilities, a corporate RIA, a compliance department, or some combination of the three. Technology needs, he added, are another huge hurdle. He cited an in-house study which concluded that advisors who outsource their technology needs can increase their revenue by 30%.

Summing up the tenor of the conversation was Securities America’s Nagengast. See: Securities America shifts back on offense as it wins a $350 million advisory firm from Investment Centers of America.

“It’s not independence” that matters most, he said, “but interdependence.”

Mentioned in this article:

United Capital Financial Advisers
RIA Welcoming Breakaways
Top Executive: Joe Duran

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