Products September 20, 2011

Schwab Expands Resources for Advisers Considering the RIA Model

Schwab Advisor Services has published a new white paper focusing on legal and regulatory considerations for advisers looking to transition to an independent RIA business model.  
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Schwab Advisor Services, a provider of custodial, operational and trading support for nearly 7,000 independent registered investment adviser (RIA) firms, has focused on legal and regulatory aspects of going independent in its latest paper, titled “Legal and Regulatory Considerations: Navigating the Transition to Independence as an RIA.”  The paper is part of the Schwab Market Knowledge Tools (MKT) white paper series.

In conjunction with this paper, Schwab has added information to its Web site specifically for advisers currently working with independent broker/dealers (IBDs), which can help advisers evaluate their choices. The site hosts podcasts and Webcasts, and will include video testimonials of advisers who have made the transition to either an independent or hybrid model (see “Schwab Finds Hybrid Practices Growing in Popularity”).  

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“Whether you are considering starting your own RIA, joining an existing one, or exploring a hybrid model, the transition process can seem daunting for many advisers,” said Nick Georgis, Schwab Advisor Services vice president. “These new resources offer insights into the process including how to plan and implement a transition and several time-tested procedures that have served many highly-successful advisers who have made the switch.”

The white paper, developed in conjunction with MarketCounsel, a business, regulatory, and compliance consulting firm, suggests advisers take the following steps:

  • Assess your employment situation and formulating an exit strategy.
  • Evaluate your needs, goals and objectives.
  • Choose your entity’s legal structure.
  • Protect your business from the unexpected.
  • Determine the type of licensing and registration required.
  • Prepare and file appropriate disclosure documents and form filings.
Earlier this year, Schwab Advisor Services conducted a survey and found that eight in ten advisers at broker/dealers and insurance companies say the idea of being an independent RIA is appealing (see “Independent RIA Model Appealing to Many”).
The Markets September 20, 2011

PANC 2011: Finally Time for ETFs?

Exchange-traded funds are not ready for 401(k)s yet.
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That was the contention of Larry Steinberg, President, The Steinberg Financial Group, before attendees of the PLANADVISER National Conference. He said this is because too many issues haven’t been worked out yet. He’d rather see big players in the industry hash out the bugs first, he said.  

Steven Dimitriou, Managing Partner, Mayflower Advisors, noted that many advantages of ETFs in the retail space won’t carry over for retirement plans.  For example, on the retail side, investors can make trades intra-day like stocks and they don’t have to wait for the end of day price: however, in 401(k) plans, the recordkeeper often makes the day’s trades in batches, losing the pricing advantage.  

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While ETFs are touted as lower-cost investments, Dimitriou noted that since they trade like stocks there may be transaction fees. In addition, retail investors can control the tax treatment of ETFs, but that goes away in the retirement plan space.  

Just because they shouldn’t be mainstream doesn’t mean plan sponsors can’t find ways to use ETFs, panelists said. William Beale, Director, Henderson Brothers Retirement Plan Services, said that what’s probably coming is the use of ETFs as specialty investments.  

Stephen DesRochers, VP-Investments Advisory & Brokerage Services, UBS Financial Services, Inc., who moderated the PLANADVISER National Conference panel, added that sponsors can offer a brokerage window in which participants can choose ETFs. Collective trusts can also use ETFs.  

Dimitriou claimed fee disclosure will drive the growth of ETF use in retirement plans. However, custodial fees, advisory costs, recordkeeping administration costs, as well as transaction costs should be considered when comparing ETF fees to that of other investments, he said.

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