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June 01, 2010 |
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Hybrid Business Model Appealing To More Financial Advisors |
(Dow Jones) Financial-planning firm Gitterman & Associates recently switched broker-dealers to support a move to hybrid status as a securities-company affiliate and an independent registered investment advisor.
The hybrid model—which allows wealth managers to operate as fiduciary investment advisors and commission-charging brokers—has been gaining traction since the dot-com and post-9/11 downturns.
It's attractive to former big-firm brokers who want independence and client-first fiduciary status but don't want to jettison legacy commission business. And it appeals to established RIAs who view commission business as a way to handle one-off transactions in the name, mainly, of simple client service.
To accommodate these advisors, custodians like Charles Schwab Corp. (SCHW), Fidelity Investments and Bank of New York Mellon's (BK) Pershing LLC have hybrid platforms. In addition, hybrids like HighTower and Sanctuary Wealth Services have emerged in recent years as alternatives for advisors who don't want the bother of setting up and running their own RIAs.
Gitterman & Associates, based in Woodbridge, N.J., ended a 10-year affiliation with the broker-dealer ING Financial advisors in May to work with Triad for reasons directly related to its move to fiduciary status the month before.
For one thing, "ING will not allow you to be a hybrid," says Jeffrey Gitterman, chief executive of Gitterman & Associates. ING denies that it prohibits its affiliates from operating RIAs, however.
"We absolutely support the hybrid model, but for supervisory purposes we insist that all transactions be done through our broker-dealer," says ING spokesman Dana Ripley.
Gitterman & Associates sees this requirement as a hindrance to having an RIA because ING reconciles trades through Pershing, and Gitterman isn't impressed with Pershing's NetX360 investment platform for hybrid firms.
In particular, Gitterman says that NetX360's overlay-management capabilities--tools that help portfolio managers align trades, manage cash flow and promote overall tax efficiency--aren't as nimble as those of Fidelity's Streetscape, his investment platform of choice.
Robert Ellis, a principal of consultancy Fast Track Advisors LLC, based in Homer, N.Y., suggests that Gitterman's views on the relative merits of NetX360 and Streetscape need tempering. "NetX360 is harder to use, but it's very deep," he says. "What technology you use and like is a function of your business strategy--what you're selling, how you're selling and who you're selling it to."
Gitterman & Associates' relationship with Fidelity ties in with its move to Triad as well. Triad clears through National Financial, a subsidiary of Fidelity. This means Gitterman & Associates' clients get "seamless statements"--that is, bundled performance reports--instead of separate statements from different firms, says Gitterman.
In general, independent advisors like to streamline document flow to mail-battered clients as much as possible.
Triad, a subsidiary of Ladenburg Thalmann Financial Services Inc. (LTS), based in Norcross, Ga., provides brokerage and investment services to about 500 independent financial advisors in the U.S.
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