Hybrids are hot — and not just among car buyers. As more advisors transition to independence these days, a growing number of them are choosing to adopt a hybrid business model that lets them conduct both commission-based brokerage business and fee-based advisory business. For many advisors, the hybrid road may offer the best of both worlds.

With that in mind, I want to share some insight into the hybrid landscape — including the two major types of hybrid business models — and examine some key issues that should be considered when comparing them.

The hybrid practice is one of the fastest-growing segments in the independent advisory business. Net head count at registered investment adviser (RIA) firms with dually registered hybrid advisors-those who are investment advisor representatives (IAR) and registered representatives (RR) — grew by 14.7% annually from 2004 through 2009, according to Cerulli Associates in a report last year. That's nearly three times the growth rate of RIA-only firms over the same period.

In sharp contrast, nearly all broker- dealer (BD) channels experienced flat to negative head count growth during the same period. At Schwab, more than 50% of the advisors who went independent in 2009 and 2010 became hybrid advisors. Going forward, market share in terms of advisor head count is expected to increase at firms with dually registered advisors and RIA-only firms at the expense of all other channels.

One reason for the hybrid model's growth is that there are more resources than ever to help advisors transition to the hybrid model. In addition, the hybrid advisors we work with tell us that they like having the ability to retain existing brokerage clients and preserve income streams generated by this legacy business.

The two hybrid models: Semi-captive vs. dually registered

If the idea of a hybrid practice intrigues you, there are two commonly used business models you can choose from, based on the level of autonomy and choice you wish to have in your practice.

Under the semi-captive model, an advisor becomes an employee (or independent contractor) of an independent broker-dealer and joins the corporate RIA of the IBD. The advisor is a registered representative under the IBD and an independent advisor representative under the IBD's corporate RIA. This is the route often taken by individuals and smaller teams as a first step in going independent.

In the dually registered model an advisor joins an existing independent RIA firm — or starts his or her own RIA — and is an independent contractor of an IBD. The advisor is registered as an independent advisor representative of the independent RIA firm and is a registered representative under the IBD.

Once an advisor has made the decision to go hybrid, choosing the appropriate business model depends on several factors. In a typical semi-captive model, the IBD offers an existing platform of products, model portfolios and other solutions that the advisor can easily access right out of the gate. That said, semi-captive advisors of an IBD may be required to use only the approved options on that platform. In contrast, dually registered hybrid advisors (especially those who start their own RIAs) generally have significantly greater flexibility in choosing advisory solutions —although their IBD may still limit investment choices on the brokerage side of the business. A restricted platform of solutions can do a great job at meeting your clients' objectives and may not feel restrictive at all. Conversely, you may find that your clients require a set of advanced solutions that only a highly customized and flexible approach can satisfy.

Infrastructure and service model support

The semi-captive model typically offers a high level of built-in infrastructure support through the IBD, similar in many ways to the level of support wirehouse brokers typically receive. There are IBDs that offer turnkey solutions for common functions like reporting, technology and rebalancing, essentially eliminating the need to source support from outside vendors. This makes the semi-captive model a more comfortable choice for some advisors in transition, though they are typically wedded to the IBD's chosen systems and there may be little ability for advisors to customize.

Dually registered hybrid advisors, by contrast, may find themselves with less of a built-in support network, but they'll almost certainly have more freedom to select from a variety of vendors and technology, enabling them to tailor their infrastructure around their specific practices.

When differentiating between hybrid models, advisors should think about what kinds of systems and infrastructure they will need to deliver the intended client experience, and how much customization and support they want — or need — to deliver that experience.