practice management | PLANADVISER March/April 2017

Assessing Independence

Many advisers would rather venture on their own than affiliate with a B/D

By John Manganaro | March/April 2017
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Art by Hye Jin

“If you want to go fast, go alone. If you want to go far, go together.”

This is probably not the first time you have heard that oft-quoted proverb, but for specialist financial advisers serving defined contribution (DC) plans and defined benefit (DB) plans these days, that conventional wisdom may not be so cut and dried.

Whether operating as an independent registered investment adviser (RIA) or an affiliate with a regional, national or wirehouse broker/dealer (B/D), advisers broadly believe that supplying the best possible service to clients takes considerable help and coordination. However, “going together” today may mean seeking help from outside professionals paid by way of fees, rather than from people on the firm’s own payroll. In either case, effectively advising clients is a team sport that requires sophisticated tools and capabilities unmanageable by the individual.

That is an important fact to keep in mind, as the face of the advisory market changes and individual advisers and their firms must determine where they will get back office support; whether they will make the challenging decision to pursue their own independent RIA designation from the Securities and Exchange Commission (SEC) vs. establish a relationship with an existing RIA; or whether they can do either—or want to do either—if that means leaving a lucrative role at a B/D. Whichever road they choose will significantly impact how advisers do their daily work and how they partner with others to get that done, pros and cons being associated with each model.

This discussion is not just happening in the retirement plan specialist space but across the financial adviser industry as a whole. Analysts at leading research firms such as Cerulli Associates and Morningstar believe independence will continue to triumph over broker affiliation, and surveys they have conducted support their views. The February issue of “The Cerulli Edge – U.S. Monthly Product Trends Edition” maintains that the current regulatory and market environments materially increase the “appeal of independence.”

Cerulli says about half of U.S.-based financial advisers “view the registered investment adviser business model as a sensible solution to increased regulatory pressure.” At a very broad level, this is because the RIA model is conceived to be less product- or commission-focused when it comes to structuring fees and compensation—possibly giving advisers greater leeway to make impartial recommendations that will be in their client’s best interest. Related to this, according to Cerulli, nearly two-thirds (64%) of B/D-affiliated advisers “plan to shift more of their business toward fee-based advisory models in an attempt to be better positioned to comply with conflict of interest rules.”