Advisers who are striking out on their own need to decide whether to be a registered investment adviser or affiliated with a broker-dealer.
“I'm finding a lot of freedom in the independent model,” says Julie Ford, a CFP who this year founded the RIA firm, Ford Financial Solutions in New York. “I'm in control of the direction of my firm, the people I serve and the services I provide.”
Claudia Mott, a CFP and the principal of Epona Financial Solutions in Basking Ridge, N.J., says that being an RIA allows advisers to make decisions independently without the demands that a larger organization may place on them, including dictating which products to sell or setting quotas or goals without advisers’ input.
But that independence also means no compliance support or marketing assistance.
And compliance issues can be complex, says P. Jeffrey Christakos, a CFP and the lead adviser at Westfield (N.J.) Wealth Management.
Finding adequate errors and omissions insurance, dealing with brokerage platforms, and handling regulatory audits can put advisers out of business if these aren’t handled properly.
On the other hand, compliance departments within BDs may not have advisers’ individual situation in mind when making decisions, Christakos says.
Other considerations to joining such affiliations include reimbursement for the BD’s overhead and profit, and product offerings that may not match individual practices.
Gregory Alerte, a CFP and the co-founder and managing partner of Premier Heritage in Woodbury, N.Y., says that such affiliations allow advisers to focus more on clients and less on back-office and administrative tasks.
Planners can also partner with more advisers.
“However, you do have to pay attention when clients might have affiliations with other advisers in the network so there’s no cannibalization,” Alerte says.
Rosa Ybarra, a CFP and senior financial planner at Tranquility Financial Planning in McAllen, Texas, says that BD affiliations allow advisers to offer products and services that might not be available to them as RIAs.
“Also, since it is quite difficult for a small firm to be able to receive access to many trading platforms or custodians, the opportunity to become affiliated with a broker-dealer becomes that much more attractive,” she says.
If an adviser has “a true entrepreneurial spirit, then RIA is definitely the way to go,” says Helen Ngo, a CFP and principal and chief compliance officer of Capital Benchmark Partners in Atlanta, who has been an adviser at wirehouses, BDs and now has an RIA firm.
“If you’re more into sales and solely want to focus on getting new clients but don’t like managing the overhead or operations of a business, then being affiliated with a broker-dealer might be better for you,” she says. “But for me, I wanted more autonomy and allowance for creativity, and so I opened my own RIA firm.”
This story is part of a 30-30 series on transitions.