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6 Ways to Improve the Super OSJ Model

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Having had the opportunity to converse with many of the key players involved in the launch of LPL Financial’s new Enterprise Management Consulting Group – which aims to help traditional producer groups evolve their businesses to add value in new ways to the advisors they serve –I am more convinced than ever that the traditional “Super-OSJ” business model is in need of a complete transformation.

First, some context:  In the past, Super OSJs (office of supervisory jurisdiction) have typically pulled together groups of very loosely allied independent advisors by offering compliance oversight support and the ability to negotiate as a bloc for more favorable pricing with broker-dealers, custodians and third-party vendors. Recent industry developments promise to make these efforts not just increasingly challenging, but less profitable and of less value to the independent advisor.

For traditional Super OSJs to survive and prosper over the long term, they must begin to provide a more dynamic set of services to independent advisors – who increasingly are facing greater practice management, asset management and technology complexities. Indeed, such businesses need to take advantage of the opportunity that exists in the current environment to eschew the traditional Super OSJ business model and remake themselves into hybrid RIA groups that preserve the independence of their advisors, but provide a broader spectrum of services that transcend compliance and provide a firmer foundation for future growth.

Who would benefit most from such a transformation? For the most part, smaller advisory practices are not a good fit for the hybrid RIA group model of tomorrow due to budgetary constraints. Larger firms with assets under management exceeding $250 million are also frequently not a great fit. Not only can practices of this size operate on a stand-alone basis, but this segment of the independent advisor market is already saturated, having become deluged by various Super OSJ groups and other aggregator platforms seeking to land a big fish.

That leaves the overlooked independent advisor practices in the middle with assets under management ranging from $30-$100 million. Such firms are ideal for increased support because they have demonstrated a distinct need for the range of value-add services that these future hybrid RIA groups will provide, and what’s more they have achieved enough critical mass to properly facilitate continued growth and expansion.

The following are specific areas in which the Super OSJs should focus in their transformational path to becoming hybrid RIA groups:

  • Career coaching –Even driven professionals who have established successful practices in this ‘overlooked’ market need added guidance to make informed choices that enable them to reach the next stage of growth in their businesses. Leaders establishing goals is one thing. Having the insight and confidence to bring a team together to achieve them is another.
  • Enhanced administrative support – Independent advisors owe it to their clients to have built-out middle and back-office operations that more perfectly mimic the support systems present in typical wirehouse and insurance environments. These functions are crucial to building a vibrant wealth management firm that is capable of offering the uninterrupted level of service that high-net worth clients have come to expect from their financial advisors.
  • Turnkey asset management tools – More than ever, advisors need the ability to outsource the day-to-day, routine mechanics of asset management. The fact of the matter is that advisors should no longer count on expanding their businesses by principally relying on the organic growth of assets under management through long term bull markets.  The key to future growth for advisors will be in acquiring new client relationships, which requires the ability to operate on as scalable a basis as possible, particularly with day to day asset management functions.  By providing a turnkey platform that allows for maximum choice and flexibility, in association with broker-dealer and custodial relationships that enable the widest possible array of financial advisor business models, Super OSJs of the future will create enormous value for independent advisors.
  • Shared brand and culture– Increasingly, advisors that seek to acquire client relationships on a national basis are finding that it is easier to work under broad, unified brand and marketing platforms that present national-level scale and resources.  Does every independent advisor necessarily need to do business as their own brand?  To what extent does the effort and expense of building and keeping an individual brand fresh make sense when you can enjoy a turnkey independent brand that has professional marketing executives supporting it?
  • Deeper subject matter expertise – Objective financial advice is critical.  Holistic and pro-active objective financial advice is even better.  As taxes, qualified retirement plan and estate laws become more complicated, mass affluent and high net worth clients alike are realizing that getting the right financial plan in place requires a lot more than traditional financial advisory expertise.  The Super OSJs of tomorrow can add considerable value to independent advisors by building “adjacent” specialties and capabilities that encompass areas complementary to wealth management – including accounting, tax advisory, insurance and estate planning.  For independent advisors who don’t have such specialty within their own practices, aligning with a group of advisors that can systematically provide such “adjacent” expertise makes good business sense, and it’s also the right thing to do for clients.
  • Succession Planning – One of the troubling realities of the industry is that smaller to mid-sized independent advisor practices frequently have no succession plan – which is somewhat ironic because these advisors arguably need one the most. Whether it is to keep the practice together in the event of an extended illness, untimely death or even to provide for a smooth exit from the business on favorable terms, it is important that advisors put their succession plans in writing. The super OSJ of the future will do that from day one for its new advisors.

There is no question that the overwhelming majority of the value of any Super-OSJ’s platform resides in each of their independent advisor’s books of business.  There is no question that independent advisors want more than anything to preserve their independent status.
Super-OSJs of the future – independent hybrid RIA groups – will find a way to preserve this independence, continue to operate as cash pass-through vehicles for affiliated advisors and add value through services that go far beyond compliance and “bloc negotiations” with vendors. 

The truly successful Super-OSJs of the future will build services that directly support an independent advisor’s ability to automate, delegate and eliminate all functions of their business that are non-client facing to a trusted provider that knows the industry well and can provide hands-on, continuous support.

The challenge for the Super-OSJ industry is how to transform their business models and capture the enormous opportunities that are ahead for all of us.

John P. Napolitano CFP, CPA is CEO of U.S. Wealth Management, a Greater Boston area-based independent network of experienced wealth managers from across the country.  

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