PANC 2015: Broker/Dealer and OSJ Evolution

“With the Department of Labor’s fiduciary rule, it will become very difficult to do advisory services as a broker/dealer,” suggested Kimberly Shaw Elliott, president of IFP Plan Advisors, a division of Independent Financial Partners (IFP). “Advisers will look to us to help them with compliance and provide a level of sophistication.”

Shaw Elliot’s firm is an office of supervisory jurisdiction (OSJ) for advisers, and she was speaking at a panel at the PLANADVISER National Conference. Vincent Morris, president, Bukaty Companies Financial Services, explained that there are certain FINRA and broker/dealer (BD) policies that are in place and advisers have a multitude of tasks to perform on a daily basis. Also a registered investment adviser (RIA) has to have a chief compliance officer to enforce Securities and Exchange Commission (SEC) policies.

“One way to comply is to set up or partner with an OSJ office,” he told conference attendees. The OSJ takes on certain functions, such as client communications and advertising and overseeing trades. “And, it pulls both [regulatory] bodies together under one roof. We can do things in house to serve our adviser partners.”

William Chetney, CEO, GRP Advisor Alliance, said all of the advisory business is moving into an RIA model. When his firm worked as a BD, it found there were certain things it could not manufacture, so it decided to partner with an RIA. “At first, 73% of our revenue was from the BD business and 27% from RIA, but now it has flipped to 25% BD and 75% RIA,” he noted.

NEXT: What OSJs offer

Shaw Elliot’s firm backs the gamut from generalist advisers to retirement plan specialist advisers, and develops products advisers may need for their businesses. “If a generalist has a client connected with a retirement plan that wants help with that, they don’t have to be a specialist, we can help them.” she told conference attendees.

She adds that under her firm’s RIA structure, advisers have their own brand, but with a much larger organization behind them providing compliance oversight and structure. The value in working with an OSJ is advisers have a range of product and service choices, and can preserve their independence. Some resources her firm has available for advisers include in-house Employee Retirement Income Security Act (ERISA) counsel, dedicated compliance specialists, and 3(38) services.

In addition, the partnership with an OSJ extends advisers’ purchasing power for marketing efforts. Shaw Elliot’s firm has an in-house marketing team that will brand advisers, print out materials for them, and help them build their presence.

“A good way to describe OSJs is like a co-op,” Chetney continues. His firm focuses on helping retirement plan specialist advisers. “Our partners’ clients can do what large plans are doing if they band together; some things they just can’t do on their own.” As an example, Chetney says it takes scale to provide services at a participant level. If there are thousands of participants in a plan, advisers and plan sponsors may have to contract advice out. GRP has contracted with Financial Finesse so clients and their participants have access to Financial Finesse’s certified financial planners (CFPs).

“It’s a scale thing,” Chetney concluded. “Specialists 15 years ago needed to do certain things but didn’t have the scale. Partnering with an OSJ can help them keep up with trends and have resources they can use. It brings things to the mid-market resources they didn’t use to have.”