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Independent RIAs, Megabanks on Equal Footing on Alternative Investments

Independent RIAs are now every bit as resourceful as the biggest banks when it comes to alternative investments and dynamic estate-planning strategies.

There’s an abiding myth about the independent RIA space. It has to do with investing, risk management and lending—and, historically, it has some foundation.

It used to be true that independent RIAs—which manage client portfolios as fiduciaries and typically charge fees on assets under management—couldn’t easily source alternative investments, lenders and sophisticated insurance strategies for estate planning. Meanwhile, their competitors at big-bank-owned brokerages have long been able to access in-house facilities for alternative investments, loans and insurance products.

But with rising client demand and better technologies, the competitive landscape in the wealthmanagement industry has been bulldozed. In fact, the new layout may provide advantages to RIAs, thanks to smart and nimble providers like Halo Technologies, Black Diamond and Dynasty Financial Partners.

My colleagues and I have direct experience on this altered landscape. We established our own RIA Amplius Wealth Advisors early in 2021, after more than a dozen years together at a megabank-based brokerage.

How and Why Things Used to be Different

Previously, with large brokerages tied to in-house investment banking and asset-management arms, their brokers operated at an advantage over RIA advisors when it came to sourcing alternative investments.

That didn’t matter too much in the 1990s, or even in the early 2000s. In those days, yields from bonds and deposit instruments did their job by adding value to portfolios while offsetting the inherent (and relative) price instability of stocks.

When the U.S. Federal Reserve dropped rates nearly to zero to contain the 2008 financial crisis, fixed income became a drag on time-sensitive retirement portfolios (again, at least relatively). Going 100% equities, meanwhile, is too risky.

So the hunt for alternatives was on, supported by consumer demand. Most retail investors simply want their money working at maximum risk-adjusted capacity to boost their retirement savings. Morning Consult says 92% of U.S. retail investors want better outcomes from their investments, and Kiplinger’s says 90% of them prioritize protecting their retirement savings from market turbulence.

RIAs Can Get Anything National Brokerages Can (At Least)

Hence the rise of alternatives—investments with exposure to investments in areas such as private equity, venture capital, real estate and hedge funds—in retail channels. In fact, as an independent firm, we were immediately struck by the investment and planning capabilities available in the independent channel.

“Structured products,” another type of alternative investment, have also come to the fore in this broad investment category. In providing downside protection (limiting what you can lose) in exchange for capped returns (limiting what you can gain), these vehicles use options to guardrail exposure to anything from stocks and bonds to market indexes, currencies and interest rates.

Generally, the return on a structured product “is economically similar to” returns achievable “by combining a bond with one or more options or other derivative instruments,” according to UBS.

Meanwhile, banks and fintech companies have given small firms access to whole supermarkets of alternative investments.

About 10 years ago, a consortium of global banks launched Simon, an online marketplace that gives financial advisors access to structured products. About two years later, Halo was born with a similar mission but lower minimums, making structured products more accessible to a broader swath of investors.

Bringing Insurance to Bear on Estate Planning

The result has been improved pricing of these alternatives for consumers, and—for advisors with a more or less holistic view of their clients’ financial goals and commitments—more scope for customization.

But independent RIAs can go even further on their clients’ behalf. For investments with suitable risk profiles and other specific qualifications, my team can structure alternative investments in-house. A spur might be a client getting wind of an impending real-estate deal that still has feelers out for capital. We might follow up to conduct rigorous due diligence for our clients or purpose deal structures best suited to them individually.

Similar to advances in investing, independent RIAs can now use insurance as a key to strategies that:

  • Provide “equalization” for hard-to-split assets (including family businesses and vacation homes)
  • Protect inheritances from state or federal estate-tax hikes
  • Avoid probate delays
  • Cover “final” expenses like funerals and outstanding debts, including income-tax payments

And while most independent RIAs don’t have in-house lending facilities, they often help clients get competitive bids from different third-party lenders, with that process streamlined by technology. In a big-brokerage setting, securities-based lending is common, but clients will only hear from in-house financiers.

Reality Trumps Even the Most Enduring Myths

Boiled down, the changes I’ve described point to the emergence of independent RIAs as “solution centers” every bit as resourceful as the biggest banks, and much more aligned with their clients’ interests.

Meanwhile, consumers have grown more aware of RIAs, whose advisors must conduct themselves at all times as fiduciaries to their clients, just like attorneys and corporate-board members, according to Schwab. More than half of consumers polled—57%, Schwab says—prefer working with an RIA over any competing business model.

This attitude is slowly reshaping consumer preferences. RIAs and “hybrid” firms—RIAs with additional brokerage affiliations—grew wealth-management asset share from 16.8% in 2007 to 24.2% in 2018. The four largest U.S. brokerages saw asset share shrink from 42.6% to 34.0% in the same timespan.

Clients are smart. They know when an advisor is on their side of the table. And while the fiduciary status and straightforward economics of RIAs have always made RIAs look good to consumers, we see more growth in store as word gets out that old barriers to alternative investments and dynamic estate-planning strategies have long since disappeared.


Matthew Liebman is the founding partner and CEO of Amplius Wealth Advisors in Blue Bell, Pa.

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