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Four Qualities OSJs Should Look for in Broker-Dealer Relationships

Lately, there’s been increased focus on the rise of offices of supervisory jurisdiction or OSJs - organizations that were originally created to provide independent advisors added scale by helping to manage the growing number of compliance obligations our industry has faced in recent years.

Over the years, however, the role of the typical OSJ has evolved beyond compliance and regulatory issues to comprise supporting the independent advisor across a range of mission critical business functions, including marketing, business coaching, succession planning, and administrative support. As a result, a more accurate way to describe OSJs might be to refer to them as independent branches.

Ideally, independent branches and the independent broker-dealers (IBDs) with which they are affiliated should enjoy a highly synergistic relationship. Indeed, the more value independent branches add to the practices that join them, the better their recruiting efforts should be, which ultimately would benefit the broker-dealer.

Unfortunately, we don’t live in an ideal world, and the unpleasant fact is that while many independent branches and IBDs may embark upon a relationship with the best of intentions, these alliances all too often fall victim to squabbling over recruiting and retention policies – the very issues that should unite them under a common interest.

It doesn’t have to be that way. Here are four things independent branches should look for in an IBD partner:

1. A personalized, contextual view of advisor recruiting, versus "one size fits all" policies. Many IBDs have blanket policies regarding advisor recruiting that serve to eliminate otherwise well-qualified candidates. For instance, some firms will not even consider prospects who have a bankruptcy on their record. But context and nuance matter. Independent branches should be able to rely on their IBD to see the world as it really is — consisting of various shades of gray rather than one that can be viewed in purely black and white terms. This requires an understanding not only of how long ago past issues occurred, but an appreciation of the extent to which they are relevant to the advisor’s ability to effectively serve clients and contribute to the business. That, however, rarely happens under a highly bureaucratic, one-size-fits-all approach to recruiting that many large IBDs currently employ.

2. A willingness to look beyond minimum quantitative production thresholds. The problem with production metrics is that alone they fail to provide a full view of an advisor’s value. Indeed, professionals with esoteric, less quantifiable expertise are often capable of driving greater performance for the broader firm, even as their individual production fails to stand out relative to their peers. Think about, for instance, an advisor who is in the bottom 10 percent in terms of production but has mastered the ins and outs of the Affordable Care Act or Medicare. Is it really worth moving on from this individual without thinking about the full value they are able to provide other advisors in the firm and the clients they serve?

3. A recognition that compliance is a vital component of the independent branch model, but not the sole focus. As the regulatory landscape has become increasingly burdensome and complex over the years, IBDs have understandably sharpened their focus on compliance and supervision. In some cases, though, this has meant subordinating the business activities and objectives of their independent branches toward appeasing regulators. This is an adverse development, not just for the IBD and the independent branch, but for the advisors and their end clients. While it’s important that IBDs continue to recognize that compliance is an essential part of what independent branches do every day, it’s equally important to understand that such concerns are not the only driver of their business.

4. The ability and willingness to support the formation of ensemble practices. Successful independent branches seeking continued growth are increasingly looking at either evolving into ensemble practices or facilitating the formation of ensemble practices among certain of their member advisors. Typically, independent branches align with an IBD because, in their view, it’s the best way to maximize growth. But something to consider is whether forming an ensemble practice within an IBD potentially provides an even better way to grow. Under the ensemble practice model, the team's advisors work closely together on an integrated basis, leveraging their expertise in different areas to achieve positive outcomes for all the firm’s clients, regardless of who is the designated advisor. Depending on the culture and strategic goals of the independent branch, having the IBD adopt a supportive approach to the option of forming an ensemble practice is therefore quite important.

Looking at the development of the OSJ model over the years, it's clear that the very term ‘OSJ' is misleading. It is essentially a nod to a regulatory perspective of our industry, suggesting only a compliance focus without regard to the other services a branch manager provides to create an environment of success. 

Whatever the case, as we all know, the reality is much broader. The overwhelming majority of advisors working in the industry today go to great lengths to protect their clients. Therefore, what they truly need from their independent branch partners is a set of tools and services that include but go beyond mere compliance support.

So, for both advisors choosing to form new independent branches and for already established groups seeking to grow, it's vital to carefully consider whether your IBD partner takes a one-dimensional view of your business, or if it has the qualities needed to truly help you thrive.


Clive Slovin is president and CEO of The Strategic Financial Alliance, a privately owned independent broker-dealer and registered investment adviser based in Atlanta.

TAGS: Industry
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