Across any industry experiencing change and consolidation, there are always going to be those with their own agendas who promote a sense of inevitability with certain trends.
In the 1980s, it was conventional wisdom that shopping malls would only get bigger to handle continually growing retail foot traffic. In the 1990s, dial-up Internet was seen as the technology of the future. And in today's fast-changing independent wealth management industry, there are those who would have you believe that independent financial advisor firms seeking to build enduring value in their businesses will inevitably go—and stay—RIA, resulting in the IBD/corporate RIA dual registrant space fading away.
This seems to be one more myth of inevitability that is already starting to be punctured by reality. The truth is, that for RIAs of all sizes, giving up their registration and tucking into a larger firm presents potentially significant value for advisors, often well beyond pure monetary returns. Tucking-in can simplify the life of an advisor, removing regulatory and operational responsibilities and freeing them to expand their core business, while establishing streamlined opportunities for continuity planning.
To understand why reports of the demise of the IBD/Corporate RIA model are premature, consider the following myths and counter stories.
Myth #1—Only Smaller RIAs Benefit From Tucking-In
Smaller RIAs have seen a marked reduction in services from their custodians, which has compressed their profits. The ongoing technology arms race for both back-office operations and client facing solutions hurts the smaller firms more than those with sizable AUM. And shifting regulatory requirements place an undue burden on smaller firms.
But in today's marketplace, we must ask what is a "smaller" RIA?
The pressures facing RIAs today are not predicated on size. There has been a compression of custodial services for firms with upward of $250 million in total client assets, especially in the wake of the pandemic-fueled Great Resignation. Costs continue to rise for all independent RIAs, as even larger firms are faced with increasing technology and support spends. And the complexities of the ever-changing regulatory environment require RIAs up and down the size spectrum to hire full-time employees or contracted consultants to support their dynamic compliance needs.
A tuck-in option can mitigate these concerns by providing RIAs of all sizes immediate access to significantly better pricing, services and back-office support.
Myth #2—No Longer Your Own Boss
There is no doubt that joining a larger firm reduces an advisor's ability to call all the shots and requires them to get used to operating within someone else's business model and regulatory protocols. Yet for most advisors, shedding the "Chief Everything Officer" title, and the responsibilities that come with it, is well worth giving up some control.
By taking advantage of the operational, regulatory and technology functions of a larger firm, advisors are empowered to fuel their own growth. Gaining access to a centralized advisory platform is another benefit of a tuck-in, especially if the advisor aims to provide a more holistic financial planning offering. Additionally, working with a firm that values a collaborative approach can enhance an advisor's business.