A hybrid RIA is both an RIA and a broker/dealer. In this post, we’ll examine the benefits of the hybrid RIA model so you can decide if it is the right choice for your practice.
Good Life Companies offers a full suite of services to transition, support, and grow your independent financial advisor business. Learn more.
What is a Hybrid RIA?
Before we jump into the benefits of a hybrid RIA model, let’s start by defining the model. To do that, it can help to better understand the difference between an RIA and a traditional broker-dealer:
- Broker-dealer. In this model, the financial advisor works under a wirehouse or broker-dealer firm, processing all business through the broker-dealer’s RIA. Services are compensated on a commission basis. Under this model, the advisor is often restricted by the policies of the overhead broker-dealer in terms of what products and services can be offered. Commissions and revenue potential may be relatively low as well.
- RIA. In this model, the financial advisor is registered as an independent RIA. The advisor retains full control of their business and revenue. This is a fee-only structure, however, and advisors operating under this model are not able to sell commission-based products.
- Hybrid RIA. A hybrid RIA model combines the best of both worlds. Under this model, the advisor retains full control of their business and revenue, but they can also sell commission-based products through a broker-dealer.
Benefits of a Hybrid RIA
Let’s take a look at the benefits of the Hybrid RIA model for advisors and their clients:
Benefits for Advisors
If you are considering becoming an independent financial advisor, here are some of the top reasons you should consider establishing your practice as a hybrid RIA:
- Product Access. As a hybrid RIA, you have the ability to offer commission-based products like annuities and fee-based products while retaining control over your revenue for both. There is no longer a need for you to refer clients to third parties for a cut of your revenue.
- Flexible Business Model. With greater product flexibility, you have the freedom to structure your business as you see fit. Serve the market areas that you want to serve, and enjoy the freedom to make changes to your business model to best meet your short- and long-term goals.
- Client Retention. If you are transitioning away from a wirehouse or broker-dealer, don’t leave your client base behind. By establishing as a hybrid RIA, you can continue to provide commission-based services. This means that you can continue to serve your old client base from the broker-dealer (assuming you do not have any contract restrictions in place that would prevent you from taking those clients with you).
Benefits for Clients
The hybrid model isn’t just good for advisors. Clients can also enjoy the following benefits when choosing to work with a hybrid RIA:
- Convenience. Clients can work with a single advisor to cover all of their financial needs rather than having to work with a separate broker-dealer and RIA. All aspects of their financial plan can be managed from a single platform.
- Personalized Service. Hybrid advisors have a greater ability to tailor product options to a client’s unique needs. Likewise, they are not biased by the policies of an overarching firm. Instead, they can offer clients a full range of product options to best serve their needs.
Industry Trends & Statistics
According to data from Echelon Partners, the number of independent broker-dealers has declined by nearly 30 percent since 2007, while the number of RIA’s has increased by over 60 percent. And, according to a study by Cerulli Associates, hybrid RIA’s market share increased from 4 to 8 percent. This growing market share is bolstered by growth in client acquisition and revenue as well. According to the 2018 RIA Benchmarking Study from Charles Schwab, RIA’s reported a 5.5 percent increase in new clients, 11 percent increase in AUM growth, and 10 percent firm revenue growth.
As a hybrid RIA, you can better position yourself to tap into multiple market niches, expand your revenue potential, and retain control over your business.
Considerations When Transitioning
If you are considering a transition to become a hybrid RIA, it’s important to keep the following in mind:
- Compliance. Whereas your firm may have handled compliance for you in the past, as an independent advisor you will be responsible for ensuring compliance. If this seems overwhelming, don’t worry. There are outsourced compliance solutions available to simplify the process.
- Practice Management. Are you intimidated by the idea of having to manage your own practice? The administrative side of the business is often new to transitioning advisors, but it’s important to have a plan in place. Depending on your workload and business goals, you can either attempt to handle administrative tasks on your own, hire internal staff, or outsource to a third party. For starters, learn more about Good Life virtual practice management services.
- Equipment & Technology. When establishing your practice, you will need to make sure you have all of the necessary equipment and technology in place. From financial planning software, to CRM platforms, reception equipment, and more, it’s important to equip your office for success. Learn more about Good Life financial advisor technology solutions.
- Plan Ahead. The sooner you can start planning for your business, the better. Having a comprehensive plan in place can help you to limit business disruption during your transition and set you up for success. For a deeper look at the business planning and development process, read our blog on How to Create a Financial Advisor Business Plan.
Good Life Can Make Your Transition Easy
With Good Life financial advisor transition services, you will have a dedicated team on your side to help you throughout the entire process. From determining the best business model for your goals to setting up your office space, marketing, lead generation, and more, we provide comprehensive services to help you establish, manage, and grow your practice. Get in touch today for more information.