In the first model, Stratos equips the advisor with necessary technology and finds them office space. In the second model, advisors receive a higher payout in exchange for taking on more responsibility for running their practice.
“The full-service model is a more turn-key approach,” Shapiro says. “There are very few extra costs. If they choose the more independent model, there’s a higher payout, they get everything Stratos has to offer, but they pay all of the fixed costs.”
Overall, Stratos’s payouts range from 60 percent to 85 percent, generally higher than it would be if they struck out on their own. Advisors have equity in their own firms and the ability to gain ownership with Stratos after a year of affiliation in lieu of commissions.
Thus, Stratos allows representatives interested in breaking away from brokerages an opportunity to enjoy similar levels of support while crafting their own customized business, minimizing disruption to client services as they transition.
“After they transition their clients over, our advisors tend to grow very quickly because we take away the things that caused them to be inefficient,” Shapiro says. “If you take a wirehouse or bank advisor who has been confined to the technology and products and tools they’re given at the wirehouse firm, then expand them to the entire universe of tools, platforms and products, they tend to be able to grow at a faster rate,” Shaprio says, stating that Stratos’s firms grow at an average of 19 percent per year per advisor. “That’s almost six times the average independent advisor.”
Stratos brings some of the resources of a national firm to the local level to help its advisors manage their practices, including compliance and technological resources.
“We provide ongoing support,” Shapiro says. “We have a system-wide CIO. We provide analysis, supervision and compliance support. We have an IT desk staff to deal with phone calls from our advisors
Stratos pioneered an Apple iPad order entry system through a virtual desktop environment, and brought in Riskalyze technology to assist its advisors.
Advisors don’t just create their own client niche, they can choose their own specialization to best use their expertise and create their own fee model. Thus, Stratos operates like a virtual professional organization of representatives collaborating to provide full-service advice to their clients.
Stratos also seeks organic practice growth. Advisors actively seek referrals, and routinely ask for the names of 100 potential prospects from their clients. They are also encouraged to leverage local law and accounting firms.
“We have also gone in and established bank relationships so our advisors can be the wealth advisors of local banks and credit unions,” Shapiro says. “That sets us apart and is generally why people want to be a part of our firm.”
In the long term, Stratos can serve as a succession plan for independent representatives and advisors, taking over their book of business when they decide to hang it up.
“We have made 20 practice acquisitions in the past two years,” Shapiro says. “The advisors who want to retire, we’ll help buy their book and transition it.”
For LPL, firms like Stratos are engines of growth that have helped it remain the nation’s largest independent broker-dealer — LPL grows as a custodian as the hybrid firm provides back- and mid-office support.
Stratos’ strong growth shows no sign of slowing, says Shapiro, with an average of 30 advisors joining the firm each year.
“The advisors we’re seeing are larger and more productive advisors than we saw at the beginning, and we think that trend is going to continue,” Shapiro says. “We’ve taken this hybrid RIA solution and made it fit all business models, and we’ve created something unique in the affiliation model that provides a higher service for our advisors.”