With fee-based advisory services becoming more commonplace, an increasing number of firms are shunning independent broker-dealers’ corporate RIAs in favor of setting up their own hybrid RIA model.

In the minds of many, this more go-it-alone approach not only provides the most flexibility and control—especially when it comes to controlling their technology and product choices—but it also offers the best growth, brand-building and equity ownership opportunities. After all, this type of freedom is at the root of what makes independent advisors so passionate about being, well, independent.

There is another reality. Many hybrid RIA firms continue to lag “pure” RIAs when it comes to valuations.

Hub And Spoke
Even though some advisors have moved to a hybrid RIA model, they might largely be doing business the same way they always have as brokers or independent advisory representatives. This is no doubt due to the fact that many of them began in the industry at a time when commissions dominated. They are comfortable in the independent contractor model and still own their client relationships. They’re still filing 1099s. If they team with other advisors, it’s often simply to share resources and centralize services.

In terms of optimizing value, however, this “hub and spoke” approach has limitations (see the table). That’s because it typically places a high priority on payout, with most of the revenues going to advisor compensation.

Since margins are slim as the hybrid RIA covers the firm's other overhead costs, including staff salaries and vendor payments, his or her earnings suffer. That’s a huge problem for valuations, which are based in large part on EBITDA multiples.

First « 1 2 » Next