What do cassette tapes and compact discs have in common with Super-OSJs?
They are once-essential innovations that now struggle for relevance. Tapes and CDs, for that roughly 20-year interregnum between vinyl records and digital audio formats, were, one after the other, the primary ways that audiophiles accessed music.
Similarly, for a time, Super-OSJs provided a crucial access point in the wealth management industry. Situated between registered representatives and their broker-dealers, OSJs provided more responsive service to the reps, along with supervision and compliance support, and as frontline recruiters for the firms. OSJs went home with their fees, and most everyone was happy.
It’s different now, with technology enabling broker-dealers to provide the support and services to their advisors directly, and most firms—again, leveraging technology—recruiting reps without need of an intermediary. It’s becoming harder for OSJs to justify their slice of revenues, which themselves are shrinking due to fee compression.
What’s a middleman to do?
The hybrid RIA model provides a way forward for OSJs seeking to redefine their value propositions, regain their relevance in a changing industry and position themselves for long-term growth and success.
OSJs’ Achilles Heel
The only way to maintain relevance with advisors is to provide them something of value. With the tide of advisors shifting towards advisory models, OSJs risk being left out in the cold if they don’t put themselves in a position to support advisors doing fee-based business.
Establishing an independent RIA while maintaining a Super-OSJ office and the existing relationship with broker-dealer, enables firms to meet advisors where they are in terms of establishing the right model for themselves, whether it’s as a dual registrant or purely as an individual advisory representative of the RIA.
But this is just the tip of the iceberg. Much of the true value of setting up an independent RIA lies in the fact that it can be structured as a business entity. The Achilles heel of the Super-OSJ model is in the independent contractor relationship that representatives have with the broker-dealer.
Broker-dealers are required to pay their 1099 contractors individually, not any business entity like an LLC, partnership or corporation. As such, most of the value of the revenue reps generate through client service accrues in reps’ books of business, not with the Super-OSJ office, which essentially provides a set of services that, while necessarily, are not irreplaceable.