Many financial advisors want to leave the broker-dealer world and join RIAs. But they don’t necessarily want to register their own firms.

One obvious choice is to turn to what’s called “turnkey RIAs.” These are independent RIA firms (in many cases owned and managed by advisors) that offer support to those advisors wanting to piggyback their practice onto a firm for business essentials and often much more.

Advisors are increasingly turning to this model, and away from the dated broker-dealer model, because turnkey RIA firms still offer them the help they would otherwise need with compliance, client billing, account performance reporting, etc. Turnkey RIAs also offer advisors the basic technology to run their business (their “tech stack”) because, like broker-dealers, these firms can vet the assorted applications advisors will need, ranging from CRM programs to financial planning applications. Moreover, turnkeys often accommodate an advisor’s request to use a particular technology not available on the standard menu, something B-Ds are hesitant to do.

Basically, a turnkey RIA allows you to come as close as you want to “being your own RIA” and to “plug and play” with an existing firm—but without going all the way and running an RIA yourself. The latter choice requires you to register with the Securities and Exchange Commission (or your state if you don’t meet a certain asset threshold). Running your own RIA also means essentially running two businesses at the same time: one in which you work with clients and one in which you operate a regulatory/administrative entity that puts you in charge of all compliance matters, technology matters and other things. That’s a huge undertaking.

Many advisors looking to be recruited out of other channels are drawn to this model (the ones I work with are mostly coming from independent broker-dealers, though advisors from other channels such as the wirehouses are also attracted to it). Why? The model of broker-dealers is dated when it comes to the fees they charge for services like business processing, compliance help, marketing support and website creation. Advisors are likely going to find the prices more compelling in the turnkey RIA space, where they can increase their net revenue while lowering their clients’ administrative fees.

At the same time, advisors in this space are better positioned to work as fiduciaries. As regulators exert more pressure and best interest requirements become a bigger problem for broker-dealers, those problems loom for the broker-dealer reps too (especially if clients lodge complaints against them). That’s why attorneys preach so much about advisor liability at FPA chapter lunch meetings. Given those problems, it’s no wonder the head count is shrinking in the B-D world.

There are four key advantages turnkey RIAs offer:

Financial advantages. Say you have an advisor who manages about $40 million in advisory assets and also serves clients with 403(b) accounts. Like many advisors, she might be considering leaving the broker-dealer mold for RIA models.

Say she did a cost-benefit analysis and considered going solo and registering an RIA of her own. She realizes her service could be affected if she were a stand-alone client of institutional custodians like Fidelity IWS, Pershing Advisor Solutions or Schwab. She would forfeit better pricing and other enterprise benefits and might be pigeonholed in a category that gets her only those companies’ most basic support. Moreover, her compliance and technical support costs would eat into her net monetary gain. And she would not likely want to take on her own responsibilities for compliance, technology and a long list of other things.

Ultimately, it might be an easy decision for her to affiliate with a turnkey RIA instead.

Many advisors assume that if they have more than $100 million in assets under management that they should be registering their own RIA, but that’s not the case. Advisors with more in assets and revenue can still benefit from a group scale and enjoy break-point asset pricing going with a turnkey advisory (the costs decline at higher asset tiers).

Also, at turnkey firms, the advisor payouts are typically 100%, minus the all-in pricing for assets under management charged to affiliates (which are around 8 to 12 basis points). Many advisors are also increasingly wanting to charge their clients financial planning and subscription fees in addition to AUM fees. It’s important to remember that few turnkey RIA firms would allow their investment advisor representatives to retain 100% of those fixed fees. Some collect several basis points from their reps for these fees while others apply the higher AUM based fees mentioned before.

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