One of the most common misconceptions I hear from advisors who are thinking about getting out from under their current structure and moving to an RIA sounds something like this: “Eric, I am interested in joining an RIA, but about 40% of my revenue is still in transaction business that I don’t want to lose.” The answer to this objection is one of the newest trends in the financial advice business: The Hybrid RIA.
In the financial advice world, there are two basic concepts: the traditional broker-dealer (BD) model, which is dominated by commission-based revenue, and the advisory model, which features an asset-based fee model for compensation. Many advisors think they have to pick one or the other, especially if they want to get out from under a large firm and get more freedom. Plus, as mentioned above, they are concerned that if they move to an RIA, they will lose the relationships and revenues of the accounts and clients on the transaction side.
Well, these are problems—but they have a solution. A Hybrid RIA!
It’s a catchy name but what does it mean?
In essence, a hybrid RIA is an RIA that also has a broker-dealer relationship. A typical hybrid usually has a custodial relationship for advisory business and a different broker-dealer partner for the transaction business. This ability to pick separate partners allows for a more customized relationship for the advisor, resulting in better pricing and a better service relationship.
For example, at KCFA we use Charles Schwab as our advisory custodian and a First Clearing firm, Coastal Equities, as our broker-dealer partner. Here’s what’s great about joining a hybrid like Key Client: as long as you use the custodian (Schwab) for your advisory business, you can choose any broker-dealer partner you’d like. If you prefer to use a different broker-dealer than what we use because it is a better fit for you, you can be affiliated with Key Client and continue to use that broker-dealer, assuming they are willing.
It’s important to note that not every RIA is a hybrid, and that some broker-dealers do not want to affiliate with an outside advisory firm. But if “the trend is your friend,” then the hybrid RIA model is the best of all worlds.
Key Client Fiduciary Advisors, LLC (“KCFA”) is an SEC-registered investment adviser located in Fairfield, New Jersey. This blog post is limited to the dissemination of general information pertaining to KCFA’s investment advisory services. The information in this blog post should not be construed as personalized individual advice. A copy of our KCFA’s written disclosure statement as set forth on Form ADV, discussing KCFA’s business operations, services and fees is available upon written request.