Since Sweep and Ghibli and I are on the subject of RIAs…
Sweep, since you seem to know what I’m looking to do, what kind of business model would you suggest? My options, as best I understand them, are 1.) Open my own RIA and clear through Scwab/Raymond James/Pershing/Fidelity, etc., 2.) Partner with a local RIA and use their clearing broker, 3.) Partner with HD Vest or First Global (who both specialize in working with CPA’s), or 4.) Partner with one of those pyramid-scheme-type of B/D’s (Ameriprise and Primerica come to mind).
#4 probably isn’t going to happen. #1 isn’t particularly appealing because of the idea of doing your own compliance. So I’m really stuck between #2 and #3.
My boss used to do #2 and is still on good terms with them. They clear through Cambridge. As best I can tell, he got a flat 75% payout. The other 25% went to the RIA and paid for them to do the compliance, sending out statements, placing trades, etc. They also kept all the investment literature at their place, because from what I can tell, if I tried to place trades at my office, I’d have to keep all the prospectuses (and whatever else you have to have) available, per FINRA guidelines.
Hmm…good questions. Personally I would go off on my own and clear through Schwab or Fidelity (or TD). But, if you don’t want to deal with compliance, then I could understand wanting to go under someone like LPL or Raymond James (go with LPL). If you go that route from the start you may enjoy it just fine. Though the RIAs I know well on a personal level that have become dually registered (holding both your 65 and 7 or 6) with an LPL/RJ/Commonwealth/RBC/etc absolutely hate it. They all say the red tape (specifically relating to compliance) is worse than doing it yourself.
I have heard positive things about Cambridge, and HD Vest and First Global sound like compelling options given what you want to do too. Don’t go to Primerica, though I will stand up for Ameriprise a bit. They have the highest payouts of any broker-dealer (up to 90%) and they’re not a pyramid scheme (i.e. you have no “downstream” nor is recruiting part of your job). Ameriprise gets a bad rep because they churn through so many advisors. They’ll hire anyone off the street, but if you succeed in their system, you’ll make way more money off a smaller asset base than just about anywhere else.
It really comes down to whether you want anyone lording over you. Anything involving being dually registered or, obviously, full on joining a firm like Ameriprise will subject you to all the crap that comes with them.
I wouldn’t worry too much about compliance. Just use a small number of funds, say four, and you won’t have to keep that many prospectuses around:)
^No, that’s why tons of RIAs are becoming dually registered (called Hybrid RIAs) with a broker-dealer like LPL (they have the fastest growing hybrid RIA population at the moment). Their pitch is these RIAs can’t offer a full suite of products unless they’re registered with a BD (basically for variable annuities). Once they get them onboard the BD starts to sell them on their custodial/clearing capabilities. But, so far most hybrid RIAs still use Schawb/Fido/TD for that side of their business.
Definitely sounds like creating my own RIA is not for me. Tax filings give me enough headache. I don’t need compliance too.
If/when the day comes that I start doing the investments thing, I’ll probably just follow the path that my boss did, and become an IAR for the local RIA. 75% payout from the first dollar, and they also have an annuity/life insurance platform. Sure, I’m giving up 25% of my revenue, but it’s probably well worth it to avoid the compliance stuff.
^Just talked to a guy who used to work as an IAR for Cambridge. He says they were a little slower to act, because Cambridge clears through Pershing, so any trades or changes you make have to clear two hurdles.
He’s with LPL now, and says that things move faster.
So I’m still on the fence as to whether to go the full RIA mode, or just go with the Cambridge guys, where you can use the 1% AUM platform, but can also sell the variable life insurance and annuities, when appropriate.
^Cambridge allows their advisors to clear through Pershing, Fido, Schwab, and TD. Trade execution shouldn’t be hindered by what clearing firm they use…interesting.
LPL self-clears trades so there is one less party involved, but I haven’t heard that as a selling point before…not that that means anything necessarily.
Also, more so as an fyi, you get to set your own wrap fee. It doesn’t have to be 1% of AUM. In fact, I just read the industry average for fee-based broker-dealers is 1.08% (not that far off, but the point is you can charge whatever best suites your business).
Kind of a sidebar: Many people believe the huge move to passive from active over the last five or so years has been because advisors woke up one day and finally threw in the towel and decided to go passive. That’s not the case at all. The lower the cost of the funds they provide, the more they can charge and still remain competitive. It’s not a coincidence that the move to fee-based and the move to passive has been highly correlated.
The banks are getting really agressive in WM and they have scale. Its forcing advisors to re-define their business model and service offering and Fee-Based combined with passive mgt is allowing them to lower fees for the client and increase their revenue at the same time. Thus, you can look after a smaller number of clients (households), provide better and more personal service than the banks.
I think it’s more like “Cambridge does the compliance, then Pershing clears the trades. So there are possibly two people that can reject your trade for X reason.” That’s why my guy told me, anyway. Not having a lot of real experience in the industry (aside from going through the licensing and basic training), I’m not really sure why this is a problem. Presumably, if one hurdle is cleared, the other one should be too.