Continuing alternative investments as an RIA?

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Jul 3, 2010 7:40 pm

Hey folks,

I was wondering if I could get your feedback on something....tried "googling" and came up with little or no info.

I am a Series 7/66 licensed RR/IAR under an indie b/d.  Most of my business come in the form of insurance (annuities, life, health) and alternative securities (nontraded REITs, partnerships, private equity/debt, equipment leasing, and lots of misc. Regulation D funds).  I do have a bit of managed futures and managed money as well.

I am considering dropping my series 7 due to concerns about FINRA's control over my practice, and the fact that my b/d is attempting to control my activities and operations more and more via the FINRA doctrine.  I have done lots of research about the pros and cons of being a fee only RIA, but here is my major concern....

Will I lose my ability to do alternative securities business for clients without a Series 7 and b/d?  Most specifically, I am concerned about losing access to securitized real estate (Tenant in Common properties, DSTs, partnerships) and private equity/debt funds.  Most of my alternative investment business is Reg D only to accredited investors.

What is the story on RIAs transacting reg D business?  As an RR under the b/d, I receive commissions from selling securitized real properties and partnerships.....is it possible to bill the client for a commission or split the property management fee with the real estate sponsor?

Thanks!!!

TRIP

Jul 20, 2010 2:37 pm

anyone? :)

Jul 20, 2010 2:45 pm

I know you can do nontrade Reits(Inland, Cole etc) but instead of commish you charge your %.

So my assumption would be that you couldn't bill for REG D commission, but you would have to charge a fee on the assets(%) or just an annual fee(but the annual fee would have to be universal)

Jul 20, 2010 4:40 pm

nice, thanks for the heads up.  I did call COLE about nontraded REITs and they said I still need Series 7/22 affiliated with a broker - dealer; this kind of defeats the purpose of allowing the REIT to be sold as fee only with an RIA....

Well, at least it seems alot of my Reg-D is still available on a fee only basis - oil and gas drilling, real estate LPs, etc.

Jul 20, 2010 5:23 pm

I know Inland and KBS can be sold by RIA.. you even had to check a box to say you were RIA(they discount the share price($9.30 vs $10.00)

Jul 21, 2010 3:20 am

Ice,

That may be a great idea, but I'm already with an indie b/d (who allows hybrid RIA setups).  Despite the fact that I am starting my own RIA, the current b/d compliance people have said that since I'm a rep with them, and FINRA has mandated that all outside business activities be supervised, my RIA would be under their direct supervision as well.

Not sure if another b/d can give me complete control over my advisory business since all b/ds must answer to FINRA....and as a registered rep under a FINRA b/d, they would still have me by the balls....

However, if you feel there would be other b/ds out there that would not try to control my business and micromanage me, I would be very open to suggestions.

Jul 21, 2010 3:20 am

Ice,

That may be a great idea, but I'm already with an indie b/d (who allows hybrid RIA setups).  Despite the fact that I am starting my own RIA, the current b/d compliance people have said that since I'm a rep with them, and FINRA has mandated that all outside business activities be supervised, my RIA would be under their direct supervision as well.

Not sure if another b/d can give me complete control over my advisory business since all b/ds must answer to FINRA....and as a registered rep under a FINRA b/d, they would still have me by the balls....

However, if you feel there would be other b/ds out there that would not try to control my business and micromanage me, I would be very open to suggestions.

Jul 27, 2010 4:36 pm

Hi TRIP, the postings are correct, many of the Advisors (of course with some exceptions) will allow you to use their products under an advisory/fee relationship.  The product types which were once dominated by the BD world for which there was no RIA/Fee solution have been dissapearing over time as more Advisors go RIA.  I feel this will continue to be the case.  For example, the products below were once only available through BD channels but not so anymore:

1. 529 College Savings Plans

2. Variable Annuities

3. Variable Life

4. Non-Traded REITs / Limited Partnership Investments

My point to all of this, keep checking around.  The more progressive product manufacturers want to distribute their wares to all different types of advisors possible and not exclude one advisor type of another.

Aug 2, 2010 4:37 pm

I've recently made the wire to hybrid RIA move (my own RIA) and I'm very happy with the hands off nature of my B/D.  Most want to take a piece of your RIA fees, mine doesn't.  Aside from the financial aspect, I haven't found them overstepping their boundaries...yet.  Feel free to PM for more information.

Aug 4, 2010 2:38 am

[quote=iceco1d]

Why don't you just re-affiliate with a b/d that caters to hybrid RIAs.  They KNOW to stay out of your business.

[/quote]

Flyonwall, I sent you a PM.

ICE: Can you give me some examples of b/ds that know to not screw with me and my business?  I am under the impression that they don't exist because they have to be the enforcers of FINRA's ridiculous rules and want to apply these rules to my RIA business?

Aug 4, 2010 10:29 am

Talk to Fred at Trade-PMR.  His contact info is in a previous post.  They are pretty progressive in terms of hwo they deal with RIA's and B/D's (they have a hybrid model in addition to RIA only).

Aug 4, 2010 11:09 am

Since I had a number of PMs on this, it might make sense to post here as well.  If you want the name of the BD, PM me. 

My BD takes 15% of my commission business, but absolutely none of my fee based business. That 15% can drop to 10%, I believe at the 250k or 500k mark for the BRANCH, not the rep level. I have another reg rep with me. Another important note is that you are expected to do 50k per year, per reg rep. If you don't reach 50k, you will get a "desk charge" of the portion they didn't get their 15% of. For example, if you do 40k in commish, they will want 10k * 15% = $1500 as a desk charge. Lastly, they put FIA/EIA through the grid, if that matters to you. All other fixed biz you can go direct, or use them, your choice. If you use them, it goes through the grid, and counts towards your numbers.