XY Planning Network is exploring the creation of a corporate RIA that would offer its nearly 1,770 member advisors the option of joining the firm for compliance and other services, founders Michael Kitces and Alan Moore said in an interview at the firm’s annual conference in Atlanta today.
“We’ve been getting a lot of requests from perspective members, current members and members who are leaving, saying, ‘Hey can you offer an option where you do compliance and more of the oversight and just let me go focus on planning?” Moore said.
The corporate RIA launch is not “inevitable,” he said. However, the firm is evaluating what members want and what they’ll pay for it and anticipates beta testing the model for a select group of advisors in the first quarter of 2024, followed by a potential full rollout the rest of the year.
“We’d anticipate that it would take probably 12 months before we could open up the flood gates so members who want to join can sign up. It is a more intense process to join our RIA. There is a lot of training and education. So we’re targeting the first part of next year,” Moore said.
Kitces said XYPN has had so much organic growth since they launched the firm 10 years ago that, if they were an independent broker-dealer, they would be among the top 20 largest firms.
An internal benchmarking report shows that XYPN advisors who offer only fee-for service financial planning and advice are adding clients at a 29% average annual compound growth rate, compared to a 5% rate for advisors on the Charles Schwab platform, he noted. Some think that Schwab's absorption of TD Ameritrade left a void in the custodian marketplace for younger, smaller advisors.
“Our members' biggest problem is that there are so many clients and they’re growing so fast, because they’re growing at quintuple the rates of the industry, that they’re just trying to figure out how to do hiring and staffing and capacity management to keep up with growth. Across 1,770 members growing at nearly a 30% rate, tens of thousands of clients are being added every year,” Kitces said.
With that growth, however, has come tremendous administrative responsibilities, especially in compliance. “Not all advisors want to spend four hours on compliance, but regulators have made it very clear, you cannot outsource your chief compliance duties. You are chief compliance officer of your RIA.
“It's that shift in compliance responsibility that we’re finding is the driver of this conversation with our members,” added Kitces, who said there are some advisors who want XYPN to take responsibility for creating and documenting compliance processes and procedures and supervision.
One stipulation that both Moore and Kitces underscored in the creation of the XYPN corporate RIA is preservation of operating model choice for advisors. “The only way we will launch a corporate RIA is if we can build out a way that advisors can move between the offerings pretty seamlessly. So, if they want to be part of a corporate RIA and eventually launch their own firm, that is totally fine by us,” Moore said.
The firm and advisors are growing because there is “immense demand from consumers in their 30s, 40s and 50s who just want to outright pay for financial advice. They don’t want an AUM model, because they literally don’t have assets to manage yet. They earn money and they’re willing to spend it for financial planning,” Kitces said.
That growth is in contrast to a segment of the fee-based AUM advisory world that is turning to mergers and acquisitions to grow. “There is so much struggle in growth of the AUM model and such a surge of M&A. Firms are having so much trouble in figuring out how to grow organically with traditional AUM clients that the only way they can figure out how to grow is to acquire,” Kitces said.