HD Vest?

Since we’re on the subject of dodgy financial advisers and my new job…

Someday, if the partners ever give me the green light, I’d like to start managing client assets in-house. I was thinking about using HD vest as my BD/RIA. (Better than Primerica, I figure.) I know some others (like Raymond James) will also do this, but I think HD Vest is supposedly set up for CPA’s who want to do it as an added value to their existing practice. Most of the others (like RJ) seem to be for practices that are exlusively investment management.

Anybody know anything about this? Have any other thoughts or ideas?

I used to work for Wells Fargo which owned HD Vest and I also worked for an independent RIA. I think Wells sold HD Vest off. But anyway, my two cents from seeing both sides is that you would be better off to set yourself up as a completely independent RIA and clear through Schwab, Fidelity, Pershing or whoever. If you set yourself up with HD Vest, LPL, or RJ as an independent Broker Dealer, you will be an agent of the firm which jeapordizes your objectivity. Also they will set sales quotas etc. Better to be independent. An added selling point to your clients. The bright side to going with HD Vest, RJ or LPL is that they will provide you tools and research which you won’t get to the same extent from your clearing firm if you are independent. You might get some solft dollar research and S&P reports, but it is pretty slim. Just my 2 cents.

^I’ll show you how little I know about the process.

When you set up your own RIA, aren’t there boatloads of hoops to jump through? Aren’t the annual filings a nightmare? At least if you go through HDV, LPL, or RJ, you don’t have to do all the filings.

And do they really set quotas? It’s not as if I’m going to be a retail financial advisor in the typical sense. What kind of quotas are they looking for?

And I’m not really keen on research and market intelligence. My personal opinion on market efficiency is that we should try to get beta return, not alpha return. I would probably stick with ETF’s and index funds (or maybe a very few active funds) for client portfolios. Would the BD/RIA always be on my case to push active funds or constant trading? I just want to charge an AUM fee and have it go to the grid.

I’ve heard good things on TD institutional. I think its called Veo

Going completely independent is a little more work, but there’s not a ton of paperwork until you manage over $25mm. Then you have to file with the SEC. That may have changed recently though, so double check that.

Unless you know you’ll need brokerage services for something, go the pure RIA route. Most hybrids - guys that are duel registered as an RIA and with a BD - generally need a way to sell variable annuities. If you’re not doing that you probably don’t need to be affiliated with a BD.

If you must, LPL has a pretty good hybrid set up. You can clear through their RIA platform or you can still choose to use Schwab, Fido, etc…Just beware, once you’re affiliated with a BD you’re subjected to their compliance oversight. You won’t be able to publish so much as a newsletter without getting it approved first.

Cambridge Investment Research is another one that provides a good hybrid set up with lots of independence.

I started an RIA within my accounting firm back in 2000. I have since shut it down as I transferred all the accounts to the firm I am with now.

I had no desire to go with a BD like HD Vest, so I went independent. Compliance was a bit of a pain, but nothing too bad. Certainly should not be the reason you choose one route over the other.

I concur with the comments by PH and STL.

So how do you manage assets if you have an RIA but not a B-D?

Again, all of this is presupposing that I have to work for an RIA. I know I’m exempt from the Series 65, because I’m a CPA and hopefully a Charterholder. I don’t know Texas state law regarding whether I have to register. Any ideas on how to find that out?

You’ll need your Series 6 and 63 if memory serves. You wouldn’t need your 7 since that’s only for commission based selling.

What do you mean by “how” do you manage assets? You’d get set up with a custodian like Schab, Fidelity, or TD and use their platform to trade securities for your clients’ accounts. No problemo.

When I went through it in California, I had to pass the series 65. I got a lot of conflicting advice on the series tests, so be careful.

STL is right. Once you have a master agreement with Fido or other, you will be good to go.

And I am not sure I know what you mean by “have to work for an RIA.” I don’t think it is like the series lisense where you are sponsored by the BD if that is what you are thinking.

I think a conversation with a Fido or Schwab rep may be worth your time. They would love to sign you up provided you have some assets to bring. Even if you don’t, you can get some idea what is required by their back office to get things started if you decide to be independent.

You’d need to get your series 65. If you are a CFA charterholder or a CFP you can apply for an exemption. You would not need your series 7 or series 63 because those are brokerage licenses for both FINRA and the state. Pretty much it is as easy as STL said, apply for your state securities boad to open an RIA if you are managing

I like most of what you said, but I’ll have to think about this part.

First–remember that I work for a CPA firm, and we are tax accountants first and investment advisers second (if I ever get there). Stock-picking takes a lot of time, effort, and energy that is probably better spent on tax planning and compliance.

Second, I’m not a stock-picker. Never have been, and probably never will be. Don’t know anything about it. If I knew a good stock-picker, I’d just hire them as a fund manager, instead of doing it myself.

Third, this runs somewhat contrary to my opinion of stock-picking theory. Sure, I believe there are a few Warren Buffetts and Peter Lynches out there that can outperform the market, but they’re few and far between, hard to find in advance, and most managers aren’t worth their price. I think it’s better for most individuals (even the $50m portfolios) to stick with low-cost, low-turnover funds. Not necessarily ETF’s or index funds, but a Davis NY Venture fund, that charges 80 bps and has 6% turnover. (Chris Davis is one of the very few managers that I would take a chance on.)

Fourth, I wouldn’t be a “retail financial advisor” that you’re thinking of. That is, I wouldn’t be selling Mom and Pop a few American Funds mutual funds, a $250k variable life insurance policy, and a $1,000 “get out of debt” plan. I would only be working with our existing client base, and most of them have considerable funds invested in the market already. I wouldn’t be convincing them of the power of investing–just convincing them that they should invest with ME, instead of with Smith Barney or Merrill Lynch.

Remember too–I’ve never really worked with investments too much, save for two months at Ameriprise and six unproductive months at Morgan Stanley. And I’ve certainly never run my own RIA, so I’d be starting from scratch. It’s not as if I’m starting with a company that has $28 billion under management.

Most RIAs use a mix of mutual funds and ETFs. It would be unusual if you didn’t.

Then guys like me would buy you steak dinners.

Bump, for Systematic, who suggests a TAMP (Turnkey Asset Management Plan), whatever that is.

TAMPs are used a lot by financial advisors at places like Securities America and Cambridge. RIAs use them too but they’re not as widely adopted. It’s just buying asset allocation models from a third party.

If you work at a large BD like any of the wirehouses or Ameriprise, LPL, Raymond James, Commonwealth, etc., all those places have their own home office models and don’t allow their FAs to use TAMPs. FAs can either choose to pick their own investments or they can put their clients’ money in models picked by the home office analysts.

Many smaller BDs don’t bother putting resources towards building their own models so they encourage their FAs to use TAMPs if they don’t want to do it themselves. RIAs are in a similar situation, not having a home office to rely on for investment decisions. But, most RIAs are in the business because they love the investment side of it. They do their own research and make their own models instead of paying a TAMP to do the same thing.

Honestly I don’t know why anyone with a CFA would bother using home office or third party models. Why bother learning about all this stuff if you were just going to outsource it anyway?