As the fee-only advisory model continues to gain momentum, this growing trend is expanding into different flavors. Choosing the right one depends on various factors, according to panelists who spoke today during a session devoted to advisory models at the FSI OneVoice conference. The event was held in person in Orlando, as well as virtually.
“We’ve seen a trend toward fee-only for several years,” said Colleen Bell, vice president of operations and chief fiduciary service officer at Cambridge Investment Research Inc., a broker-dealer firm in Fairfield, Iowa. “We started a program called Advisor Advantage about seven-plus years ago that was designed specifically for the fee-only advisor space. We’ve seen an uptick in the number of people moving toward that affiliation model.”
Bell said the fee-only model runs the gamut from financial advisors who are dually registered with a broker-dealer and a corporate RIA; those who are fee-only within a corporate RIA, meaning they don’t have any affiliation with the broker-dealer; or those who are an independent RIA but are associated with a broker-dealer which provides services that independent RIAs need through clearing firms or outside custodians.
She pointed to a couple of aspects driving the fee-only movement. One pertains to young people joining the industry straight from college-level certified financial planner programs.
“They might start fee-only and never get their Finra licenses,” Bell said. “So firms need to be prepared to add people to their business [who will] stay in that fee-only space because that’s what they’ve been taught and that's what they’ll want to be affiliated as.”
The other relates to seasoned advisors who don’t want to deal with Finra anymore, and instead want to explore the fee-only route either with a corporate RIA or on their own. For those advisors, Bell said, her consultation includes a rundown of the pros and cons of the different options.
“I don’t care one way or the other whether you start your own RIA or [go] with our corporate RIA,” she said. “It’s up to you. Do you want to take on that additional burden [of starting your own RIA]?”
She added that many advisors focus on the sunny side of being on their own and figure they can handle all of the chores that come with that. But she said she tries to give them a dose of reality via some pointed questions.
“Will you hire someone to actually make sure you’re following all of the regulations?” Bell said. “Will you be ready when the DOL has a new rule, and you need to make adjustments to all of your policies and procedures? You can’t just hire a consultant and have them deliver to you what your policies and procedures are. It’s an on-going process.”
Bell noted that about 100 of Cambridge’s 3,700 advisors are fee-only, and about 70% of those are with the firm’s corporate RIA.
Desiree Sii, president and CEO of SagePoint Financial Inc., said her Phoenix-based broker-dealer firm likewise has a small number of fee-only and independent advisors under its roof. She noted a trend she’s seeing is advisors giving up their independent RIA and going to the corporate RIA.
“The primary reason is due to the complexity of running your own RIA,” Sii explained. “It can be difficult and expensive, and they find the economies of scale [in a corporate RIA] can assist them from a price standpoint. I do think the trend will be to go RIA-only, and I think firms need to be prepared for that.
“But I also continue to see a need for commissionable products and protective strategies for clients, so the B-D space is an important space to be in,” she added.