Independent broker/dealers have lately been ramping up their efforts to attract hybrid advisors, launching new recruiting efforts and rolling out integrated commission and fee-based platforms and hybrid-specific services. Meanwhile, two major custodians released reports about the importance of the hybrid market — defined as those firms that operate an independent RIA and have a broker/dealer affiliation — in the past several weeks.
Hybrid advisors still represent a small segment of the business, accounting for only about 5 percent of all advisors, but that number should rise to around 8 percent by 2014, according to Cerulli Associates. Cerulli projects total hybrid headcount will grow 11.8 percent this year to about 15,830 advisors.
“Broker/dealers who do not carefully evaluate the hybrid opportunity run the risk of being at a competitive and economic disadvantage,” said Jim Roth, managing director at Pershing. Pershing released an independent study last month, ”The Economics of Constructing a Hybrid Platform,“ that encourages broker/dealers to consider developing hybrid platforms. Pershing worked with FA Insight, which interviewed firms that had existing relationships with Pershing as well as those that did not. Meanwhile, Schwab Advisor Services released a report Feb. 24, titled ”Understanding the Hybrid Practice,“ that outlines trends in the growing hybrid space and offers suggestions for advisors making the transition to a hybrid practice.
Today, virtually all broker/dealers allow their advisors to do both commission and fee business, and 75 percent of all financial advisors are licensed to do both. Most of these b/ds allow advisors to conduct fee-based business under the firm's corporate RIA. A much smaller number of firms allow their affiliated advisors to act as true hybrids — to maintain a b/d affilliation and manage their own outside RIA. This can be important to some advisors, who may prefer to have full control over how they provide fee-business to clients.
LPL Financial (Nasdaq: LPLA), which has its own RIA custody platform, is an example of one industry giant with a lot of machinery set up for hybrids, said Scott Smith, Cerulli Associates senior analyst. Some other b/ds that allow independent RIAs include Cambridge Investment Research, United Planners Financial Services, Comprehensive Group, Geneos Wealth Management, Ausdal Financial Partners and Williams Financial Group, according to Jonathan Henschen, president of recruiting firm Henschen & Associates. American Portfolios Financial Services, Summit Brokerage Services and First Allied also allow independent RIAs on their platforms, according to the Pershing study.
NFP Advisor Services Group (formerly NFP Securities) only recently repositioned itself as a home for hybrids, allowing advisors to operate their own independent RIAs while also using NFP brokerage services. Just this month, the firm started aggressively recruiting hybrid advisors, with direct mail and print ad campaigns as well as road shows, and NFP plans to add three new recruiters by mid-year, said James Poer, president of NFP Advisor Services Group. The firm also recently rolled out IndeSuite, a wealth management platform that centralizes an advisor's fee and commission-based businesses through an integrated dashboard. While Schwab is the first custodian on the platform, Poer said the system is not restricted to one custodian. Today, more than 90 percent of NFP's advisors operate under the traditional model, in which they use the corporate RIA. But Poer expects the new effort will attract a broader universe of high-end advisors.
Cetera Financial Group, the holding company for former ING b/ds Financial Network, Multi-Financial and Prime Vest, has also been gearing up to attract hybrids. Barnaby Grist, executive vice president of wealth management, says the company has been building out its technology architecture, which now includes an integrated reporting system and a way to aggregate advisors' fee- and commission-based business in one place. And in January, the firm completed the integration of data flows from 19,000 financial institutions. Advisors can now see information about assets custodied at these institutions, with client consent. (Cetera's corporate RIA custodies with Pershing, but advisors who use an independent RIA can custody with other firms.)
Cetera is also introducing a new consulting agreement, which allows Investment Advisor Representatives to offer consulting without a written financial plan. The agreement extends for a period of one year, and advisors can choose between a fixed fee or hourly fee in how they charge, Grist added. Cetera also revised its client agreements, so advisors can more easily reassign accounts to another IAR without having to obtain a new advisory agreement.
Capital Analysts, an independent b/d in Cincinnati has also been ramping up its efforts to support the hybrid model recently, beefing up its on-boarding and new business development team to recruit hybrid firms. Last year, the independent broker/dealer brought on James Barnash, a former president of the Financial Planning Association, to head up its branch development team. In the last year, Capital Analysts has added over $1 billion in new assets from dually-registered advisors, said Matt Lynch, president and CEO. Ninety-eight percent of the firm's advisors are dually-registered. In September 2009, Capital Analysts moved from National Financial to Pershing to provide clearing services. Pershing's RIA Complete platform allowed Capital Analysts' advisors to manage commission- and fee-based business in an integrated technology platform. The broker/dealer also eliminated custodial fees for clients, something the firm's hybrid advisors felt was needed to better serve clients, Lynch said.