Johnstone is also an attorney, and he said he sought the blessings of the Financial Industry Regulatory Authority. “We said, look, we don’t want to sell stocks, we don’t want to sell bonds, we don’t want to sell anything. All we want to do is provide a shoebox solution where these breakaway RIAs can have a place to off-load their annuities, get paid for them and have the client-relationship protected,” he said.
He and his team wanted Finra to understand that the current situation is problematic and is forcing clients into situations that aren’t in their best interest, and to allow his B-D to have a limited filing with them. “And so, we are kind of a limited-use strip-down B-D that does one thing and one thing only. All we do is we provide an off-loading solution for these annuities for these breakaway RIAs,” he said.
Once the legacy products are assigned, JBS sets up a 15-year relationship with the selling advisors, who then receive a monetization of that ongoing income stream. The advisors can cancel at any time, Johnstone noted. “So it effectively becomes a 30-day written contract,” he said, adding that the advisor also has the option of moving the annuities elsewhere if at some point they choose to do so.
In essence, JBS pays the advisors for the legacy annuities and protects the client relationship. “So we are just a parking place that will allow these 100% RIAs to receive a monetization of that ongoing income stream that they would otherwise be walking away from.”
As for compliance, Johnstone said the only requirement is suitability, which is an incredibly low standard, he said. And unlike friendly broker-dealers, his firm does not have to go in and supervise the RIA. “It’s really more of an arm’s length, clean breakaway from B-Ds, and then we come in and we basically take out the trash.”
Another thing Johnstone said that makes his offering attractive and is often overlooked is that advisors who completely retire from the industry can assign their legacy annuities to JBS and, in return, receive commissions from JBS for the rest of their lives. “And if that’s not enough, we can even pay it to their spouses, too,” he said.
JBS recently completed its first breakaway placement with Credentialed Wealth Advisors, a Colorado Springs, Colo., team that recently left Edward Jones for Raymond James, which serves as the custodian for Johnstone’s RIA.
Roy Hucke, the managing partner at Credentialed Wealth, said JBS was a good solution among all the options available. “We went into it with our eyes wide open to help each other,” he said, noting that Johnstone’s experience and insight were helpful. “We are hoping this works as a long-term solution,” Hucke added.
Working with Credentialed Wealth Advisors to monetize their legacy annuities helped JBS “work the bugs out” and refine its offerings, Johnstone said, noting that his firm is working closely with the Raymond James recruiting team to onboard other firms.
Johnstone said there is a definite need for this new tool in the industry as advisors break away from wirehouses and become 100% RIAs.
“The last thing they want is a B-D all up in their new business, and that’s what is happening with these friendly broker-dealers,” he said.