Displaying items by tag: RIAs

(New York)

One of the ways that wirehouses have been trying to make their brokers (and their brokers’ clients) more sticky is by pushing loans. Brokers are encouraged to get clients to borrow money. These loans have the effect of binding clients to firms for long periods, and correspondingly, it makes it harder for brokers to breakaway because clients are more likely to stay put. However, some RIAs are combatting the trend by offering to replace client loans during the transition period when brokers are joining their firms. Perhaps even more interestingly, custodians are getting into the game too, with Schwab announcing recently that they would be increasing lending products available to advisors to help them transition clients away from wirehouses. The loans provided often have lower interest rates than what the wires offer, so the success rate in migrating clients has been quite high.

FINSUM: The loan game has been the domain of the wirehouses for years, but with the big custodians getting involved, this is another important structure that will make breaking away easier.

(New York)

A lot of advisors have been going independent lately. Whether you are moving to start your own RIA or want to join a large independent broker-dealer network, there are a lot of intricacies involved with running your own shop. Before you even think about the logistics of moving, it is important to assess whether you have the skills to succeed. There are essentially three skills that one needs to become a successful independent advisor: operational experience, in-depth relationship management skills, and sales/business development acumen. Operationally, you will likely have a tight budget when first breaking away, so understanding the nuts and bolts of the business, like migrating client accounts, is critical. Secondly, you will need to be able to concisely define the nature and scope of your relationship with clients in order to keep them happy for the long-term. Finally, you will need to be able to convince people why they should manage your money (without the weight of a wirehouse brand behind you!).

FINSUM: As a companion to the above, Michael Kitces notes that most successful independent advisors had seven years experience before going it alone.

(New York)

RIAs have been growing at breakneck speed for years. Their growth rates are pretty much the envy of everyone else in finance. But to be honest, they may in fact be growing too fast. Take for instance the case of Creative Planning, a Kansas-based RIA that has tripled its client assets to $42 bn since 2016. Alongside the tremendous growth they have also seen trouble, such as an SEC fine for improper radio advertising and another less infraction. The bigger problem for RIAs is that their own internal systems for control, compliance, and governance may be quickly overwhelmed by the growth they are seeing.

FINSUM: RIAs who are growing organically are having trouble keeping up, but the ones growing through acquisition might have even more trouble, especially with keeping costs manageable considering all the overlap.

(New York)

There is a new digital custodian in the industry who is promising 90% cost savings to RIAs on their technology and custodial costs. That new company is called Altruist, and is a commission-free custody service that intends to compete with the big players in the space at their own game. “Our goal is for everyone to really pay almost nothing”, says founder Jason Wenk, continuing “How much has really changed over the last 10 years? The change is way overdue. It’s not like this is some epiphany for us”. The new Altruist platform will launch in October and be very easy to integrate with the existing platforms from major competitors.

FINSUM: Technology costs are eating up a huge chunk of revenue across the industry, so anyone that can lower them and still provide stellar service will have a competitive edge.

(New York)

RIAs all over the country have been quite confused over the last couple of weeks. Ever since the SEC’s infamous change from “and” to “or” regarding fiduciary duty and a new ban on the use of the word for certain advisors, RIAs have been unsure about whether they are allowed to called themselves “fiduciaries”. On the one hand, the ban of the term’s use for certain groups made it seem like they could not use it, while on the other the technical definition of their duty had changed such that they no longer need to be fiduciaries to in order to comply with the SEC’s rules on defining an RIA. The SEC cleared up confusion late last week, however, saying that RIAs could continue to call themselves fiduciaries as the ban on use of the word does not apply to them, and nothing has changed to limit their use of the term.

FINSUM: While many RIAs are unhappy with the recent changes because of how they will water down the RIA brand, at least the SEC was very quick to clear up this confusion.