The Enduring Advisory Firm

Preface

Financial services firms have long operated independently. The 1980s ushered in two variations on existing business models that accelerated the growth of the entrepreneurial mindset in which practitioners became owner/operators instead of working as employees of another firm: Registered Investment Advisors (RIA) and Independent Contractor Broker/Dealer (IBD) reps.

Now we are seeing a couple of new dynamics: first, the transformation from practice to business; second, the emergence of multi-owner/multi-employee advisory firms. In this light, the notion of independence becomes a bit murkier because there are more mouths to feed, more constituencies to please, and more competition for strategic direction from multiple points of view. While ownership may be independent, the notion of making decisions without the influence of others is less true.

That said, RIAs are the purest form of independence in that they are free of broker/dealer oversight and overrides on their compensation, whereas the IBD model is subject to supervision by the broker/dealers with whom they affiliate and they must share an override on their revenue production with the broker/dealers. There is also a difference in approach to business as recognized by their different regulatory structures, i.e., the SEC vs. FINRA: the RIA model is composed of professional buyers whereas the IBD model is composed mostly of professional sellers, meaning that in the former, they get paid directly by the clients and act ...