Independent RIAs

The pinnacle of independence lies within the truly independent RIA space. Advisor who want the highest level of control over their practices may either align with an RIA offering a turnkey solution to independent Advisors or start their own RIA. As the industry moves to adopt the fiduciary standard, Advisors are finding broker/dealer affiliations to be an unnecessary hassle and expense for the revenue generated and find the unattached RIA model to be the most efficient financially.

  • Advisors starting their own RIA become business owners with Schedule C business income in most cases.

    Some may also choose to affiliate with a network of independent Advisors and be compensated as a 1099 independent contractor.

    Many RIAs also offer W2 employee roles as well, making the Independent RIA the broadest class when it comes to available Advisor roles.

  • RIA owners will control 100 percent of the revenue generated by their practices and pay all of the expenses associated with it as well.

    Independent RIAs will typically pay independent contractor Advisors on a payout grid similar to the Independent Broker/Dealer model. However, representative of Independent RIAs will usually have less additional expenses subtracted from their gross payout.

    Advisors joining as an employee of an independent RIA may be compensated a percentage of their client fees, salary, bonuses, or any combination of these.

  • RIAs own their businesses and relationships entirely, as well as the independent contractors of independent RIA networks. Employee Advisors will have non-competes in many roles but may be subject to lighter restrictions that are easier to negotiate, depending on the Firm.

  • RIAs will operate as their own entity, subject only to the marketing restrictions of their state securities regulator or the SEC.

    • Maximum control of business decisions and revenue

    • Most economically efficient business model.

    • Ability to work with multiple custodians and theoretically unlimited investment vehicles.

    • Advisors may easily engage in outside businesses.

    • No ability to sell variable insurance products in most cases. Advisors often do maintain insurance licenses and can offer fixed insurance to clients.

    • RIAs report directly to industry regulators and must bear their own legal and compliance costs.

    • Most isolating business model with limited interaction with other Advisors in their peer group.

Wire House Firms

“Wire house” typically refers to the major investment Firms with a Wall Street presence. These Firms typically have multiple business divisions, including investment banking, brokerage, asset & wealth management, as well as retail banks, all under the same controlling entity. Advisors and their clients often associate these Firms with the prestige behind their names.

  • Nearly all Advisors working for a wire house will be in employee roles, with the Firm owning the client relationships.

  • Most Brokers and Advisors for wire houses are paid from the commissions and asset management fees generated from their clients. Payout grids will vary from Firm to Firm, but the typical average is in the 40-45% range.

    Firms may also pay bonuses based on an array of criteria, as well as for cross-selling and referring clients to other business divisions of the Firm.

    Wire house Firms often offer the best transition bonus packages to Advisors joining from competitors, subject to contractual terms surrounding assets transferred and Advisor retention.

  • The Firm will contractually own the client relationships and enforce these contracts strictly when employees change Firms and attempt to take clients with them. However, it is common practice to allow the Advisor to freely transfer clients whose accounts joined with them as part of a previous transitions.

  • Some Advisors may be allowed to construct their own teams within the Firm, but they will be limited in their ability to self-brand. In most cases, the Advisor must operate under the Firm's name and advertise only with company approved marketing materials and on the Firm's website.

    • Association with a prestigious brand.

    • Client opportunities from the brand itself as well as referrals from other business divisions of the Firm

    • Benefits, including stock options in the company.

    • Highest signing bonuses for experienced Advisors bringing existing client relationships with them.

    • Highly competitive environment with rigid commission growth requirements

    • Difficulty to retain client relationships if the Advisor leaves the Firm

    • Little control in the management decisions of the Firm.

    • Compensation structure may change with no input from the Advisors.

    • High failure rate of New Advisors, with most typically leaving or being terminated within the first 3 years.