Advisors looking to launch an independent business often gravitate toward the independent broker dealer space (IBD) for the extra layer of support it provides. Yet, plenty of advisors want an even greater level of support—not to mention a sense of community. For those who fall into this category, the notion of affiliating with an Office of Supervisory Jurisdiction (referred to as an OSJ) is likely to come up during due diligence. And while the OSJ acronym itself may be familiar, few advisors fully grasp the features and benefits of the model.
Long a hallmark of the independent broker dealer space, OSJs, in their simplest form, provide oversight for independent advisors wishing to offload the burden of compliance, including the responsibility of licensing and registration. In exchange for doing so, OSJs take an override on the advisor’s business.
Today, however, to remain relevant and competitive in an ever-expanding ecosystem of “supported independence,” OSJs offer far more than just supervision and oversight, with many becoming brands unto themselves. These entities provide resources and support comparable to that of a full-service firm—blurring the lines between an OSJ and the broker dealers they’re affiliated with, not to mention the platforms and capabilities found in the RIA space.
Given that, understanding the services an OSJ provides—along with the benefits of joining one—is critical for advisors considering this path.
What Is An OSJ?
While technically defined as “an office identified by a broker dealer as having supervisory responsibilities for advisors and branch offices within its region,” today’s OSJ offers advisors resources far beyond compliance—a feature set fueled by the evolution of the independent space and a changing advisor mindset.
A steady stream of breakaway advisors seeking the combination of control and support offered by supported independent models, coupled with a growing number of already independent advisors who desired service beyond what their broker dealers offered, forged an opportunity for OSJs. By enhancing their infrastructure, OSJs realized they could provide advisors with a layer of resources in addition to that of their broker dealers. These resources often include local administrative and technology support, marketing expertise, and practice management, as well as transition and onboarding assistance. Essentially, they handle much of the day-to-day heavy lifting that independent advisors wish to offload.
So, What Are The Advantages And Value-Adds Of Joining An OSJ Or Super OSJ?
Economies of Scale: In an industry where the cost of doing business is on the rise, scale matters. And given that most OSJs operate scaled businesses, they can negotiate better pricing and support from vendors and the broker dealer on behalf of their advisors. As a result, their advisors receive “goods and services” at more competitive prices than they would as standalone firms.
An Enhanced Payout: Many OSJs enjoy what is known as “enterprise-level” pricing from their broker dealers. In other words, they qualify for a higher grid payout given their sheer size, which they, in turn, pass along to their reps (while keeping a slight override).
Support: As a core part of their value proposition, many OSJs provide administrative and transition support, marketing, human resources, compliance, practice management, and technology assistance—all in addition to the platform and resources provided by the broker dealer. This dual layer of support ensures advisors remain focused on revenue-generating tasks as opposed to getting “stuck in the engine room”—making the value proposition for many OSJs that “advisors will grow faster with them than without them.”
Community And Culture: By sharing best practices and offering a sense of camaraderie, the OSJ model provides advisors with a sense of community, so they don’t feel as if they’re “alone on an island.” And especially at large broker dealers, advisors may feel like an OSJ makes “the big feel small.” Additionally, the optics of being part of something larger than oneself can provide a sense of safety and security to their clients.
A Blurring Of The Lines
The OSJ model has evolved beyond its humble beginnings of simply providing oversight and supervision. In fact, some Super OSJ models more closely resemble supported independent platforms found in the RIA space as opposed to simply a network of independent advisors under the umbrella of an IBD.
For example, over the past decade, a handful of capital providers and strategic minority investors have invested in Super OSJs directly. With national brands and hundreds of affiliated advisors, Super OSJs offer investors a predictable source of revenue. And with access to capital, these OSJs can enhance an already robust menu of offerings and strategic support—with some even opting to buy minority stakes in their underlying advisors’ practices or become a buyer of an entire practice as advisors look to solve for succession. With this option, advisors sell a stake of their business to the OSJ in exchange for cash proceeds and sometimes an equity stake in the larger firm as well. This, in turn, offers advisors the opportunity to share and benefit from the success of the enterprise. For the OSJ, this offering is a “means to an end” so far as creating some “stickiness” given their business model is essentially an enterprise consisting of independent business owners who control their destiny and could depart should they choose to.
In addition, a few Super OSJs are now offering “tag-along” provisions. That is, an advisor who sells a minority stake today may opt to sell a more significant percentage of their business down the line for a much higher multiple than they could garner on their own, should the platform have a liquidity event.
And over the past several years, we’ve even seen some Super OSJs adding third-party custody with the likes of Schwab, Fidelity Institutional, and Pershing Advisor Solutions, in addition to the custody and clearing options provided by their broker dealer. By offering a multi-custodial platform, advisors can leverage third-party technologies similar to RIAs and expand product and manager availability beyond just what their broker dealer makes available. And most importantly, it’s a means to further differentiate themselves from other OSJs in a landscape where the competition for talent has become incredibly fierce. Given that today’s OSJs often compete against RIA firms, it’s a way to make their offering more compelling to prospective advisors.
How To Decide Whether To Join An OSJ Or Affiliate Directly With An IBD
As is the case when making any career decision, it begins by asking yourself a series of questions:
• Does the independent broker dealer I’m considering offer supervision from the home office (in which case you may not need an OSJ unless greater support is a hot button of yours)? And if home office supervision isn’t an option, do I see a strategic benefit to obtaining a Series 9, 10, or 24 license and becoming my own OSJ?
• What are my expectations around support? Do I want a high-touch service experience, and is local support important to me or will what is offered by a broker dealer on a national level meet my expectations?
• As an independent business owner, how important is a sense of community and culture?
• Does joining an OSJ make financial sense, and how will it compare to affiliating with a broker dealer directly?
• Would the additional support of an OSJ outweigh the cost?
For any advisor with their sights set on the independent broker dealer space, understanding the role that both an OSJ and Super OSJ play will lend clarity to an already confusing decision-making process. Consider how the broker dealer itself views the model along with the advantages of joining an OSJ—with the overarching question being whether an OSJ affiliation will positively impact growth rate and quality of life. In some cases, advisors may find they can manifest the same level of strategic support directly from a broker dealer. But for those searching for an additional layer of scaffolding and support on a regional level, the OSJ model is a solid option.
Deborah Aronson is a manager and senior consultant at Diamond Consultants.