Six Platform Issues for Brokers Moving to an RIA
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A financial advisor transitioning from a large brokerage platform to an RIA setting has a lot to do and even more to keep in mind. This is true whether the advisor is joining an existing RIA or establishing a new one. Understanding the difference between investing through an RIA and a broker-dealer hinges on an appreciation of what advisors can expect when transitioning to an independent investing environment that features more choice and less active vetting than they may be used to. To help solve this problem, here are the six key investment-platform considerations for brokers moving to an RIA:
- The investing landscape differs for an advisor who has made the transition from a “captive” brokerage to an independent RIA. It’s like going from a supermarket to a warehouse. In the brokerage supermarket, you have a wide variety of, let’s say, potato chips – all the varieties you need, with different flavors, packaging and pricing. They are displayed and arranged side-by-side under bright lights for easy access and comparison. But in the RIA/warehouse, you’ve got more of everything – more chips, more types of chips and more pricing permutations.
- The RIA “warehouse” approach can be challenging without guidance. The RIA/warehouse model for accessing investment products may sound like a better option than the brokerage/supermarket model, and it certainly can be – but not without some help. Roaming around a giant warehouse searching for the chips you want can be finicky and time consuming. And it’s something a former brokerage-based advisor might not be used to doing. For them, it can be easy to get distracted by products that seem to fit the bill, but fall short once you’ve taken the time and trouble to vet them. A good investment platform – sometimes also called a “turnkey asset-management program” or TAMP – removes these obstacles. Those providers will know where everything in the warehouse is and exactly how each product functions, and can narrow your search to reflect your approach to investing.
- The narrowing process in action. By bringing its ongoing research and due diligence, a TAMP can turn that warehouse – representing the investing universe – into a virtual supermarket with a narrower range of offerings precisely suited to your practice. Are you an advisor whose value proposition is tied to benchmark outperformance? In that case, it can streamline your investment-product search by highlighting products that help you achieve your aims – with less emphasis on operational efficiencies, complexity and pricing. Taking the analogy further, a good TAMP can function as a personal shopper for advisors whose value-add is more attuned to planning than investing. These advisors take the “quarterback” approach to holistic planning and see outsourced investment portfolios as a compliment to a financial masterplan. For an ex-brokerage advisor of this type, a TAMP can present several model providers from which to choose. The choices would include taxable and tax-exempt vehicles, each with different takes on characteristics like simplicity and scalability. Often, these choices are the easiest for clients to understand, and frequently they’re the easiest to implement from an operational standpoint.
- Whether an advisor is planning- or investing-oriented, they will see value in a platform that addresses both considerations. Most advisors are on a spectrum between a hardcore focus on either holistic financial planning or alpha generation. Many keep both facets of financial advice – planning and investing – in mind for their clients, perhaps in a core-satellite configuration. The result? Many advisors are interested in balancing the risks associated with outperformance with the relative safety of benchmark tracking.
- Accessing separately managed accounts (SMAs). Because SMAs are more operationally complex than traditional investment vehicles, a good TAMP will maintain a fully curated recommended list of options from a platform of SMAs that can easily run into the hundreds. A good TAMP will continue to add SMAs, often for advisors who want to replicate offerings they and their clients had grown fond of at a previous firm.
- This approach applies to alternative investments as well – although the emphasis can be different. There’s a large subset of advisors who want to allocate to alternatives: structured notes and the like. They want access to alts as readily as at any big brokerage with even more options. A top-notch platform will curate this broad array to help advisors pick from what its research and diligence partners consider “best in class.” A platform should also be committed to providing best execution and best available pricing as it relates to capital markets transactions. For example, you can ask whether it collaborates with a structured-note platform that allows advisors to price notes out across multiple issuing firms to support best pricing. The net effect? Advisors and their clients become clients of the Street, along with some of the biggest institutional investors.
Moving to an RIA from a brokerage gives an advisor access to more investment products from more sources. But this can be overwhelming, heightening the need to partner with a wealth-services platform provider that is purpose-built to help RIAs and works with them on a daily basis to ensure that they and their clients get the most from their new freedom to choose.
Nick Gerace is senior vice president for investments for Dynasty Financial Partners.