The New Frontier: The RIA-Only Advisor Model
We think it would be fair to say that the last few years have seen remarkable acceleration in the financial advising world when it comes to the business model. It’s no small secret that Hybrid RIA’s are the fastest growing business model in financial planning. Their value lies in their ability to provide the financial advisor with new vocational freedom without disrupting their clients’ financial plans. In the same breath however, a new business model has begun to gain traction with a unique pool of advisors. Now presenting: the re-imagined RIA-only advisor option.
Is It Time to Revisit RIA-Only Options?
This question was one of the most interesting discussions at our most recent WealthPlan Group Reconnect retreat. As WealthPlan Group LLC continues to explore innovative RIA-Only practices, many advisors had questions in need of answers. The reason why could be clearly seen in the central topic of conversation during our advisor roundtable on the topic.
By virtue of their registration with both an RIA and Broker/Dealer, IAR’s (or “Hybrid Advisors”) have access to broker-dealer or commissionable products as well as fee-only advisory products. This allows them to provide better access to more products for clients’ financial plans.
Despite this, the industry is seeing renewed interest in the RIA-only model. From 2019-2022, the fee-only model has seen a 20% increase in advisors. Why is that? What would entice an advisor to give up access to B/D products? That was the question at the center of our Reconnect session.
As a quick note before we dive in – we are not advocating for one model or another. Both the Hybrid and RIA-only models have their unique benefits, and discovering which one is right for you is the key.
RIA-Only Advisors: Old Myths, Same Questions, New Answers
In its simplest form, the RIA-Only fee-based model compensates advisors based on a set rate for the services they provide instead of through a commission on the products they sell or trade. This compensation can be based on metrics like assets under management, fixed service fees, hourly rates, or performance-based fees.
An Old Myth: The Main Value for RIA-Only Advisors is in Transparency
One of the broader assumptions surrounding fee–only financial planning is that it increases the level and transparency and trust your clients can have. When you’re not earning a commission on products, you’re only serving their best interests, right? It’s the fiduciary pitch that’s so popular right now.
While there is a strong branding case to be made here, it’s value may be more marketing than service-based. For advisors who see the Hybrid option as the default answer, the question is simple: If your clients trust you with their financial futures now, what is the incentive to massively renovate your business model to increase trust?
So what is the main value of becoming an RIA-Only practice?
As a number of our advisors under the WealthPlan Group LLC umbrella have discovered, the main value of becoming a fee-only practice is for you the advisor, which passes through to your clients in other ways. The main benefit is in eliminating the additional logistical compliance burden of carrying Broker/Dealer products.
To be clear, this is not suggesting there is less client accountability for the RIA-Only firm, but the amount of time, money, and bandwidth required to carry those products is substantial. For some advisors, it’s worth the weight, but others may find new opportunities in re-investing those resources in their company’s growth.
As a litmus test, take an inventory of the annual finances and man-hours your business devotes to compliance related to your B/D products. With a clear view of that investment, you can start to evaluate the value your firm receives in return to serve your clients.
The Same Question: But Aren’t RIA-Only Advisors Limited in What Products They Can Sell?
As most advisors know, the decision to go RIA-Only carries with it limitations in what financial products you can offer your clients. Specifically, this includes products provided by B/D’s that are compensated on a commission basis.
A number of advisors at WealthPlan Group LLC have argued that despite this, the freedom and efficiency they gain in return is worth the limitation. It’s an answer that makes even the most seasoned advisor’s ears perk up. What comes next is far more important though. The landscape is changing rapidly to support the RIA-Only advisor.
New Answers: The Evolution of Broker-Dealers
For most advisors, the thought of their clients losing access to B/D offered products is a deal breaker, full stop. But what if that limitation wasn’t the case? As WealthPlan Group LLC has worked to develop a fee-only option, we have been nurturing relationships with Broker/Dealers who are willing to continue carrying those products for your clients under your service.
This option makes a remarkable difference because it lessens the heavier compliance burden of being a Hybrid RIA while allowing advisors to still provide their clients to B/D products. As one of our advisors said, “Business growth is about making your back office into someone else’s front office.” Or in simple terms, align your resources to focus on where you are most valuable. The emerging market of broker/dealers is seeing new candidates willing to help advisors streamline their business without affecting their clients’ financial planning model.
Continuing the Conversation Around Becoming a RIA-Only Advisor
Any advisor considering the transition to RIA-Only feels the weight of this potential decision. Truthfully, it’s not for everyone. The ultimate factor is your personal (informed) confidence that you can provide your clients with an exceptional experience.
As a very personal decision, it may be worth a conversation with a member of our team at WealthPlan Group LLC. The options available through WealthPlan Investment Management are among the industry’s most innovative when it comes to creating a fiduciary-friendly environment.
Whether you’re interested in what we are developing or you just want more information on the transition, we would welcome a conversation with you. At WealthPlan Group LLC, we are committed to creating high-quality, efficient solutions to help financial advisors succeed.