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Top Due Diligence Questions for Finding the Right Hybrid RIA Platform

Top Due Diligence Questions for Finding the Right Hybrid RIA Platform

One of the major themes in the independent financial advisory space in recent years has been the explosive growth of the hybrid Registered Investment Advisory (RIA) firm, a model in which advisors operate their own RIA firm for fee-based business, and simultaneously leverage a broker-dealer for commission-based products. To capitalize on this trend, multiple independent broker-dealers (IBDs) have ramped up their efforts to capture opportunities by establishing their own hybrid RIA platforms. The platforms might include in-house custody and services or partnerships with "outside" fee-based custodial platforms.

But for hybrid RIA firms, finding the right IBD partner and setup can still be a challenge. Too many IBD-owned hybrid RIA platforms resemble how Henry Ford felt about his Model-T when it was first produced: “Any customer can have a car painted any color that he wants so long as it is black.” Specifically, most IBDs today restrict or actively discourage their hybrid RIAs from working with “outside” custodians in favor of their own home grown platform.

There’s no question in many instances it makes sense for hybrid RIA firms to custody client assets, both commission and fee, with their BD's single custodian. Especially if the BD has developed an elegant suite of services and has expertise in the space. But ultimately, the needs of hybrid RIA firms are diverse and constantly evolving in tandem with industry changes, business growth, and client demands. So Hybrid RIA advisors must evaluate which IBD partners will provide the greatest number of avenues to support future directions of their business.

The key to success in serving hybrid RIA firms is to maintain a strong emphasis on choice and flexibility.

With this in mind, the following are three due diligence considerations all independent advisors seeking a hybrid RIA partner should ask:


1) Does the hybrid RIA platform offer maximum choice and flexibility, especially with respect to custodial relationships?

For many hybrid RIA firms, the efficiencies of a single custodial platform make a great deal of sense. Keep all the client's assets in one place if there's no good reason to do otherwise. But future growth plans or acquisition opportunities might include utilizing multiple custodial options. Or an advisor, particularly one with a much larger RIA, might find value in leveraging the resources of a "fee only" custodian while also capitalizing on the custodial strengths the BD offers on the commission side; get the best of both worlds.

While not everyone will need a multi-custodial approach, having the potential access to more than one option should be a consideration in evaluating any IBD partner.


2) Does the hybrid RIA platform emphasize integration and consolidation above breadth of solutions?

If an IBD offering a hybrid RIA platform over-emphasizes proprietary support, homegrown technology, and in-house products, it’s a red flag.

All too often firms justify limitations of a platform by over-selling the benefits of integration into their single system, consolidation of assets through a suite of homegrown back and middle office tools, and simplicity of their product set.

Take a closer look at the number and quality of solutions offered. The fact is, no one can be great at everything. The best hybrid RIA platforms are those that go beyond just internal solutions and allow the use of a stable of “best of breed” wealth management, financial reporting, and customer relationship management systems. A broad array of advisory products and financial planning tools is available without reliance on proprietary product lines. They demonstrate a willingness to allow the advisor to develop a unique value proposition rather than pushing product or squeezing them into conformity in the name of “integration.”


3) Is the hybrid RIA platform trying too hard to be all things to all advisory practices?

Find an IBD partner that understands the advisory business, not just one that sells to it. "Hybrid RIA" is the hottest term in the industry, so everyone claims to support it. But it's not right for everyone. Reputable platform providers actively partner with the advisor in evaluating whether the hybrid RIA path is the right choice for them in the first place. For example, today’s escalating compliance supervision burdens have simply become too costly and complex for advisory practices with significantly less than $100 million in assets under management to maintain their own RIA. Such firms are subject to state or multi-state securities supervision which means, among other things, more audits, uneven enforcement of regulations and higher filing fees. As a result, some advisors may choose to leverage a Corporate RIA structure until they're ready to manage their own.

Given these added costs and complexities, it may not make sense from a business or client service standpoint to establish and maintain a separate RIA entity. But the hybrid RIA platforms of some IBDs, trying to seem hybrid RIA “friendly” or believing (incorrectly) they are avoiding liability, still actively encourage smaller practices to do just that. This results in outcomes that are sub-optimal for advisors, end clients, and the IBD’s hybrid RIA platform, which is left expending resources and efforts in trying to be “all things to all advisory practices.”

The bottom line? Discover what parameters a potential IBD hybrid RIA partner would describe as “not a good fit” for having one’s own hybrid RIA firm. If you are told the hybrid RIA model works for all fee- and commission-based advisory practices, then continue your due diligence process with another firm.


Ultimately, independent RIA firms and hybrid advisors thinking about establishing their own hybrid RIA owe it to themselves and their end clients to ask the right due diligence questions to find the right long-term partner who will ensure their businesses remain well-positioned for the long run.


Michael C. Bryan is Senior Vice President of Triad Advisors, Inc. (, a hybrid RIA-focused independent broker-dealer. The firm is a wholly-owned subsidiary of Ladenburg Thalmann.

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