When wirehouse brokers consider shifting to independence, they need to weigh a lot of factors and ask a lot of questions. John Stuart and Mag Black-Scott of Beverly Hills Wealth Management provide 11 questions that should be top of mind for advisors before making the move.

1. Technology: How is the RIA Supporting the Technology Ecosystem?

RIAs thrive based on their partnership network of Service applications and tools.  RIAs that offer a full suite of Wealth Management services can have over 10 feature rich applications from Financial Planning, Insurance, Fixed Income Inventory, Employee Benefits, Office Productivity, Performance Reporting, etc.  The RIA is responsible for securing access to these applications and orchestrating these tools in a secure and easy to use environment for advisors and clients.  This is not a simple process – ask about compatibility, ease of use, single sign-on and security across all applications.  A technology migration can be the most challenging aspect of any transition.

2. Employment: Will I be a 1099 or W2 Employee?

Advanced RIAs can leverage Professional Employer Organizations to manage their payroll-roll back office, benefits, retirement plan administration, and much more.  PEO’s typically extend their services to W2 employees offering group healthcare rates and discounted 401K administration.  1099 employees will be challenged with costs associated with individual benefit rates and additional federal and state self-employment taxes which can cost the 1099 individual an extra 7% of their taxable wages.   Health care costs increased on average 10-12% for group rates and much more for the individual plan.   1099 individuals can enjoy the tax write-offs of business related expenses but once again, advanced RIAs have developed Institutional type payroll systems offering Business Development Allowances that allow W2 employees to deduct expenses from their revenues pre-tax.

3. Platform Costs: What are the Service and Platform Haircuts of My Existing Separately Managed Accounts, Unified Managed Accounts, Third Party Strategies, and Other Asset Management Services?

Most wirehouses will have a fixed haircut on SMAs of 40-50bps based on their large distribution channels.  RIAs can typically access more separate managers than a trimmed set of managers in the wirehouse but will pay a much higher haircut.  It is important to find out how you are paid on non-discretionary accounts or accounts where the advisor is not acting as the portfolio manager.

4. Payout: When, Where, and How Will I be Paid?

RIAs have tried to simplify payout structures as much as possible primarily because they lack an army of payroll resources.  Most RIAs will deduct client Fees on a quarterly basis which are then passed to the Advisor on their pay stub.  Some Innovative RIAs have designed Practice Management systems to proactively surface end-to-end revenue information.  Setting Key Performance Indicators in the varies Income Statement items such as Fees, Commissions, Insurance, and hourly consulting revenue is important to measuring the success of a practice.  RIA Revenue and Income Dashboards will be an industry trend in the next few years. 

5. Product Ecosystem: My Wirehouse Has Trust, Insurance, Annuity, and Structured Product support. What Resources Are Available to Me for Maintaining This Level of Support?

Adding partners to the RIA service eco-system requires more and more oversight and relationship management.  Smaller RIAs often leave revenue on the table because they don’t have the resources to add additional revenue related partnerships like Trust Companies and Capital Markets Trade-Away relationships.  Nimble and hardworking RIAs have defined these relationships in advance to support all of the middle office back and forth required to adequately support clients.

6. Client Service Support: I Like the Independent Space Because I Can Access the Entire Financial Services Market.  How Does the RIA Manage and Scale this Massive Addition and Products, Tools, Services, and Client Features?

How does the RIA mange client support, operations issues, compliance, and other back office type tasks?  Does the Compliance manager also support Prime Brokerage requests, payroll, reception, and new accounts?  Successful practices have defined workflows and process broken out by functional flavor.  Small businesses need surgical, utility type employees but need the right amount of resources to service the business in an accurate and timely manner.  The more responsibilities the Operations Manager has been delegated will slowly reduce the client and advisor service levels.

7. Trading Support: My Clients Have Fee and Commission Accounts with More Than Stocks, Mutual Funds, and ETFs.  What Capabilities Will I Have in More Complex Markets Like Fixed Income and Alternatives?

If you are a hybrid-Investment Advisor, the tools needed to trade Fixed Income products can be overwhelming.  Custodians bifurcate their inventory to specific Fixed Income tools.  Most Fee only Custodians offer street inventory to these Fee only accounts.  Separate systems are required to shop products for the commission side of the relationship.  How does the RIA support navigating trade-away across multiple dealers and brokers.  Advanced hybrid-RIAs can customized these to accommodate Fee and Commission trading from single dealers and their trade-away specialists in the RIA and at the custodian relationship.

8. Marketing and Business Development: I Want to Spend More Time with Clients and Business Development Activities. How Is the RIA Helping Me Do This?”

Wirehouses have always produced better metrics on average time Advisors spend on Business Development activities vs. operational tasks.  This gap is a function of the enterprise services pre-packaged for Wirehouse advisors that most RIAs tackle on a more manual level.  Does the RIA offer marketing collateral, newsletter services, Continuing Education programs for prospects and referral sources, digital and inbound marketing tools, and CRM type marketing integration and process.

9. Profit and Loss Responsibility: The Only Expense Related Costs to Me at a Wirehouse Are Premium Services, Such as Market Data and Planning Tools Along With Business Related Travel and Marketing Costs.  What Will I Be Responsible to Covering at an RIA?

Most RIAs will charge back Advisors for most retail type licenses and costs associated with running their business such as Errors and Omissions Insurance, custom marketing collateral, office space, support staff, etc.  Charge backs and individually covered expenses typically lose the benefits of enterprise type services.  RIAs that are adding advisors to their business can benefit from corporate agreements and firm wide support services.

10.   Bring Your Own Device: I Am Often on the Road, Working From Home, and Rely on My Mobile Hardware for Servicing My Clients.  Does the RIA Allow For Remote Access, Mobile Device Support, and Client Service Coverage When I Am Out of the Office?

Take a look at what the office looks like when you are not in it.  Is there someone in the office to cover my phone during office hours when I am out of the office?  Does the office staff support during trading hours or have they taken a more SMB approach and operate the typical 8am – 4pm?  How much of the corporate infrastructure, content, resources, and tools are available in a secure, mobile, and portable environment. 

11. Information Security: My  Institution Had a Large Budget for Client and Corporate Information Security.  What is Your RIA Doing to Protect Advisors and Client Personally Identifiable Information?”

Modus Operandi for RIAs and practice consolidators is to introduce a variety or partner applications to the advisory team, provision 10+ user names and passwords to access financial tools, and let go.  This is a major security issue in the independent advisory community.  Decentralized access control, audit, and governance significantly decrease the RIAs enterprise security posture.  Protecting client and advisory data has been long over looked by RIAs.  Advisors that embrace additional security measures and invest into protecting their clients in a virus and malware flooded space can compete with larger institutions for all types of clients.