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Use our Comparison Tool to compare different business models to determine which path best suits your career goals. From the options below, select up to three business models, then choose which features you would like to see in the comparison. When you are done, press the Compare Business Models button. Download a PDF showing all options.
|Bank||Full Service Firm||Independent Broker-Dealer||Independent Registered
|Start Your Own Registered
|You are fully affiliated as an employee of your parent company. Advisors working within a private wealth unit usually are assigned a book of business at the time of employment.
They are expected to grow the business beyond advisory with the support of various product experts. Most private wealth units deliver integrated banking, investments, lending, trust and financial planning to clients.
Many private wealth units segment their clients into two to four high-net-worth (HNW) groups and hire advisors to serve the various segments. Private wealth units are usually embedded in larger bank branches in densely populated HNW areas across the U.S.
The role of the financial advisor is generally more focused on sales/marketing and relationship management while other core functions like investments and planning are handed to an in-house expert for servicing.
|You are fully affiliated with your employer and part of a large national or regional firm. Advisors employed by wirehouses and regional firms are employees within a branch network setting.
You service your own book of clients and are rewarded financially based on your production. You can access fee-based advisory accounts and commission-based products.
There is significant dispersion with the size and expertise of advisors from new advisor trainees with small advisory practices to very large and sophisticated teams with billions of assets under management.
Wirehouses are the largest advisory channel in the United States as measured by client assets, but they are lagging in terms of advisor and client growth. Currently, there are 55,000 wirehouse advisors in this channel. The number of experienced advisors within the wirehouse declined by about 1,000 in 2009.1
|You affiliate with a broker-dealer to support your commission and fee business as an independent contractor or an employee. Greater freedom over brand, compliance, product and marketing. Many IBDs offer a "hybrid approach" for fees and commissions.
By becoming an advisor affiliated with an independent broker-dealer, you increase your ability to own and manage your practice and increase control. Independent contractors are free to move from firm to firm with very limited legal risk as defined by their contractor agreements.
For your commission business, you retain your FINRA licenses with these firms. Many independent broker-dealers offer hybrid platforms which allow you to deliver advisory services to your clients by using the broker-dealer's corporate RIA or by starting your own independent RIA.
An independent broker-dealer might be a good solution if you want to become a business owner with a built-in support infrastructure and require FINRA registration for a significant portion of your business.
The independent broker-dealer advisor group is the largest advisory channel as measured by the number of advisors. Currently there are 80,000 independent broker-dealer advisors nationally. The number of experienced independent broker-dealer advisors is expected to grow by almost 1,000 annually beginning in 2009.2
|You affiliate with an existing independent registered investment advisor (RIA) as an employee or contractor. You gain access to the benefits of the RIA channel, with support provided by an existing firm.
Joining an RIA provides you with a unique opportunity to gain greater freedom and control of your practice, without the challenges and risks required to start an RIA practice yourself. Many advisors see this as an opportunity to gain greater independence: the ability to service their clients without restrictions of a large broker/dealer while enjoying the benefit of working in a collaborative environment of like-minded advisors.
Given the extraordinary RIA channel growth over the last decade, you have several different affiliation models, including:
|You gain complete control of your practice as a registered investment advisor (RIA). You may also adopt a hybrid approach and affiliate with a broker-dealer to accommodate the commission side of your business.
Starting an RIA or hybrid firm provides the greatest amount of freedom. You become a business owner and have the opportunity for complete autonomy. The economic opportunity for advisors is greatest in the RIA models, with advisors gaining total independence over their revenue and expense structures.
A new RIA could introduce new challenges and risks given you are required to start and run a business entity in addition to providing advisory services. Usually larger advisors or those with a true entrepreneurial spirit select this model.
A key consideration in becoming an RIA is to adopt a completely independent and fee-based model or a hybrid-based approach. There are many factors that go into this process. Consider taking a long to approach to your decision process and leverage the experience of Pershing to help determine the right model for your business.
There are more than 19,000 advisors in the United States. Cerulli estimates that more than 4,500 advisors will start RIAs with more than two-thirds of these advisors selecting a hybrid approach.4
|W-2 employee with base salary, bonus and deferred compensation tied to revenue production hurdles.
Most bank employees do not receive a payout based on revenue or production. Your salary/bonus structure protects annual compensation on the downside, but limits your opportunity since many plans are capped.
Advisor compensation plans usually have the following elements:
|You are compensated as a W-2 employee and you are "paid out" a percentage of your production that hits the "grid." Production is a subset up total revenue generated for the wirehouse.
Advisor payouts are generally based on the production earned on various products offered by the wirehouse. In many cases, wirehouses take a "haircut" from the revenue you generate prior to hitting the established production grid. This haircut varies by product and is set by the wirehouse. Payouts off of the production grid usually range from 25% to 45% and are tiered based on production.
You could also have the opportunity to increase your annual compensation by participating and meeting production hurdles based on increasing the number of new high-net-worth clients, increasing annual production and other associated expenses. This is usually in the form of deferred compensation and vests of a defined period. Deferred compensation awards may consist of company stock, cash or both.
Wirehouse compensation plans change annually. Many industry trade publications publish current payout grids and other incentive plans.
|You are compensated as a 1099 employee with greater control over your revenue and expenses. You keep more of the revenue you generate in exchange for less integrated support from your broker-dealer.
Independent broker-dealer gross payouts generally range from 70% to 98% depending on the support model provided by the broker-dealer and your production level (also known as gross dealer concession or GDC). Many firms offer different payouts for different types of programs the advisor leverages. For example, many broker-dealers provide higher payouts for fee-based advisory accounts.
Advisors seeking to transition to this channel should weigh the attraction of a very high payout vs. the support they hope to receive from their firm. Advisors who want high payouts need to pay for functions themselves vs. paying their broker-dealer to provide the services for them. Think through what functions you want control over when seeking a new broker-dealer relationship.
There is also a difference between gross payout and net payout. Many broker-dealers will pay out a high percentage of revenue and also charge you for technology, marketing, compliance and other home office services. Recruiters and Office of Supervisory Jurisdiction (OSJ) managers should be able to provide you the details you need to understand your true payout. After expenses paid to the broker-dealer and overhead expenses to run the business, net payouts generally range from 50% to 60%+.
As a 1099 contractor, you get greater control over your expenses which allows you to control your net payout and may have significant tax advantages.
Independent broker-dealer compensation plans change from time to time. Certain independent broker-dealers may also offer deferred compensation packages and may provide sign-on bonus incentives in the form of forgivable loans for advisors that need financial assistance to transition or set up their businesses.
|RIAs are business owners that retain 100% of the revenue they generate. By joining an RIA, you have the opportunity to control your economics and have the opportunity to grow faster. You are paid flat fee or percentage of assets under management vs. getting paid for product sales.
Payouts vary from one RIA to another based on the support the firm provides you. In general, RIA firm overhead ranges from 30% to 40%, leaving 60% for advisor compensation and ownership profit distributions.
Based on the firm you affiliate with, net payouts can range from 50% to 60%. How you get paid is based on the affiliation model:
|RIAs are business owners that retain 100% of the revenue they generate. By starting an RIA, you gain complete control of your economics, including establishing your fee schedule for clients. Advisors that adopt a hybrid model receive a payout from their broker-dealer based on the production they generate.
By starting an RIA, you control the revenue your firm generates. You set the fees for your advisory services as you see fit and your firm enters into advisory agreements with clients versus broker-dealers. This structure maximizes your flexibility in charging for the services you deliver.
Advisors and clients of advisors get greater transparency for services the advisor delivers. In most situations, RIAs are paid for the advice they deliver to clients versus product sales. The fee is typically in the form of a % of assets under management, but can also be a flat fee, a retainer fee, or a combination of all. Charging fees this way allows you to clearly articulate what you charge for the advice you deliver versus the product you select for clients.
Advisors who start RIAs also control their overhead expenses and compensation plans and therefore control what they will earn. Most advisory firms have overhead structures around 40%, leaving 60% for professionals and owners. Some of the best managed RIA firms have expense structures in the low 30 percentile. RIA economics provides you with the opportunity to control what you earn year in and year out and may provide a 50% annual pay increase over other channels.
Broker-dealers of hybrid advisors participate in the economics of the advisors they support. Many broker-dealers will take a haircut from your RIA business to provide compliance and other value added support resources. You also get a payout for commission business you generate. In general, larger advisors realize higher payouts.
The RIA industry is the fastest growing channel in the industry, providing you with the opportunity to grow your revenue faster than other channels. Before the recent market dislocation, the RIA channel was growing at an annual rate of 18.7% (2003-2008).5
|Limited to products approved by parent company.
Most banks provide access to a suite of in-house investments and third-party solutions and enjoy access to a broader suite of lending products through the parent company's credit divisions.
If you want to deliver a product that is "off the menu," you generally must get products approved by the home office, with no guarantee of approval.
|Limited to products approved by parent company. As an employee of your firm, you have limited access to any third-party solutions.
Wirehouses offer a broad set of in-house and limited third-party investment solutions for you and your clients. Most firms offer products including managed accounts, mutual funds, alternatives, ETFs and structured products.
You may also access a broad set of banking products given recent industry consolidation. Wirehouses also build their own investment products and distribute these products through their private wealth branch network. Many of these products can only be held at the parent company, limiting the portability of your client assets.
If you want to invest in a product that is "off the menu," you must generally get products approved by the home office (with no guarantee of approval).
|Broad product menus offered and greater choice in advisor programs and options. Many firms will permit access to third-party programs with compliance approval. There is little-to-no investment product manufacturing.
In general, independent broker-dealers offer a broad array of products for you to offer clients. Large clearing and custody firms, such as Pershing LLC, are constantly expanding their products and services for broker-dealers, institutions and RIAs that use their platforms.
Not only do you have greater product access, but the approval process to use third-party solutions is usually greater in this channel. You also gain the ability to subscribe and gain access to a broader set of research providers across the entire street.
|RIAs leverage open architecture platforms from RIA custodians such as Pershing, LLC. RIAs may also access investment products from additional third-party investment firms.
By joining an RIA, you gain the opportunity to access the investment products you have come to depend on plus more. The products are offered through a firm's primary custodian and other third-party solutions. RIAs manage their own compliance and have the opportunity for greater control over product selection within the construct of SEC and/or FINRA oversight.
Some RIAs also construct in-house investment models, planning processes and solutions to deliver consistent solutions to clients. Advisors seeking to join an RIA should inquire about flexibility with products. Fitting in with a firm's culture is critical to a successful match, as well as finding a firm with a like-minded investment philosophy. Pershing can help you with the due diligence process, if this is the right solution for you.
|RIAs leverage open architecture platforms from RIA custodians such as Pershing, LLC. Hybrid advisors leverage their independent broker-dealer platform and have access to the same RIA custody product platforms.
When you start an RIA, you decide the product menu for your clients. Most RIAs establish a deep relationship with a custodian that provides broad and open product platforms. You can also go outside a custodian's platform to find any boutique investment product that you want to provide for clients or you have the ability to manage the assets yourself.
By starting a hybrid firm, you partner with your broker-dealer's compliance department for approval of investment products that are not available on your broker-dealer or RIA custodian platform.
|You are required to follow company brand standards. Limited-to-no flexibility to build personalized marketing solutions.
Marketing and sales materials are provided by corporate offices. You have access to canned selling systems developed by corporate to help you grow your business. You may be granted a modest marketing budget to host events and entertain customers.
Banks are usually aggressive at the local level sponsoring affinity programs to help advisors develop relationships with local centers of influences and organizations where high-net-worth investors may be active.
|You are required to adhere and follow corporate standards. Limited flexibility to build personalized marketing solutions. Some firms will allow you to "private label" your practice or build a brand within an advisory team construct.
Your marketing and sales materials are provided by corporate offices. All communications with the public are monitored and approved by the branch office or central compliance. Usually branch managers approve day-to-day communications, with corporate compliance approving any changes to marketing materials or brands.
Exception requests for changes to existing marketing policy must generally go through compliance.
|You have the option to leverage your firm's marketing programs or establish your own boutique brand within the framework of your broker-dealer.
As a business owner, you have greater control in promoting your brand and value proposition to present and future clients. Many firms offer marketing programs and third-party vendors that you can leverage.
For advisors seeking even greater support, some broker-dealers offer canned brochures, websites and other marketing materials that you can customize and use with clients. This may also include research and periodic newsletters to clients.
If you want even greater control over marketing, many broker-dealers work with you to establish a boutique brand and marketing program with the approval of the firm's compliance department.
|By joining an RIA, you enjoy the benefits of working with a firm that has an established boutique brand and reputation in an open market. Several RIA firms will work with you to establish your own brand identity.||You have the opportunity to establish your boutique brand and control of the deployment of your marketing dollars and activities. Hybrid advisors may choose to leverage some or all of the marketing capabilities of their broker-dealer.
Pershing Advisor Solutions can assist you with creating and communicating your brand. Extend your marketing team with a virtual staff of experienced Pershing marketing professionals, all dedicated to helping you grow your business.
|Turnkey solution from home office.
Bank employees use in-house homogeneous solutions. Larger banks have multimillion dollar budgets allocated to advisor technology to support their network. There is generally limited opportunity for you to customize technology for their practice.
|Turnkey solution from home office.
You leverage the solution offered by your employer. Most wirehouse platforms are a mix of in-house and third-party solutions including research, trading, portfolio management and reporting. Strict technology controls may limit your ability to use third-party solutions that are not currently supported by the wirehouse.
|Technology support varies from one firm to the next. Most firms usually provide a turnkey solution, while providing you the option to leverage third-party solutions.
You have access to your broker-dealer's core brokerage platform and usually leverage the rest of your firm's advisory platform. Given an independent broker-dealer relationship with a large clearing firm, many broker-dealers have robust technology platforms that provide you with best-in-class trading, reporting, account opening and service capabilities.
As a contactor and business owner, many independent broker-dealers will permit you to use best-in-class solutions that are outside of their platforms. In fact, many larger broker-dealers will work with their advisors to deliver discounts on technology for you.
|RIAs provide a ready-to-use technology infrastructure. Given their complete independence, RIAs select best-in-class solutions to meet the needs of their practice and potentially yours.
For many advisors, finding the right technology is something that requires guidance. By joining an RIA, you leverage the many years of trial and error of an established practice.
Many RIAs have made significant investments in technology that are tailored to the needs of their practices vs. other models where solutions are built for many different types of advisors. You benefit by not having to research and implement technology solutions.
|Starting your own practice offers the opportunity to select technology solutions based on the unique needs of your practice.
As an RIA, you perform due diligence to find the best solutions to establish and manage your business. Pershing provides you with access to in-house solutions such as NetX360 to help you manage your business and Pershing's technology consultants can help you decide which of the third-party solutions you should integrate with to help automate your office.
You gain complete control over your technology spending and can optimize it based on the needs of your business. You only select the services you need versus other channels where you pay for technology if you use it or not.
|Oversight is provided by branch management and/or corporate offices. Limited flexibility outside company standards.
The parent company is responsible for the oversight of your advisory and brokerage activity. Given the bank is responsible for activities across an entire private wealth unit, flexibility is limited.
Your exception requests for new products, account opening or anything outside of existing policy goes through multiple layers of approval and review.
|Oversight is provided by branch management and/or corporate offices. Limited flexibility outside company policies and procedures.
Advisor oversight is governed by FINRA and is executed by the local branch and central legal/compliance departments. You are generally required to adhere to a pre-defined exception process for anything outside of corporate policy.
Wirehouses have developed advanced compliance monitoring systems to safeguard your communication and interaction with your clients.
|Oversight is usually provided by a combination of a local OSJ (i.e., branch manager) and the home office. Independent broker-dealer compliance varies from firm to firm.
Advisor oversight is governed by FINRA and is managed by a local OSJ and the home office. There are other forms of supervision that may give you greater flexibility to manage your business while providing a supporting infrastructure unique to your business.
By becoming an OSJ, you also have the opportunity to recruit advisors under your OSJ office and provide them support in exchange for a portion of their revenue. Many advisors in independent firms are not only advisors for their clients, but collaborate with other advisors in their local office by providing OSJ support.
For your fee business, you may leverage a corporate RIA and become an Investment Advisory Representative (IAR) of your broker-dealer or start your own RIA and become an IAR of your firm while retaining your broker-dealer affiliation for commission business.
|RIA oversight is regulated by the SEC or at the state level. By joining a firm, you usually leverage the firm's existing compliance infrastructure.
RIAs have a fiduciary duty and as such are held to a higher standard in providing investment advice. The RIAs and their activities are governed under the Investment Advisers Act of 1940. Every advisory firm creates compliance policies and procedures that guide its employees. Advisors also are required to disclose all conflicts of interest to their clients.
An RIA assigns a chief compliance officer to supervise the activities of the firm's investment advisory representatives (IARs). If you decide to join a firm as an employee, you will be required to follow your RIA's policies and procedures. In some instances, request for exceptions may be granted within the firm without the red tape of a large compliance infrastructure.
|RIA oversight is regulated by the SEC or at the state level. You assign a chief compliance officer to manage your firm's compliance. A hybrid advisor's broker-dealer is required to provide oversight on your broker-dealer business and your RIA business.
Starting a firm means you need to build out your compliance capability. RIAs are held to the highest industry standard for advice and are governed under the Investment Advisers Act of 1940. Every advisory firm creates compliance policies and procedures to guide their employees. Advisors also disclose all conflicts of interest to clients and the public.
The Investment Advisers Act of 1940, as amended, requires that every advisory firm appoint a chief compliance officer to oversee all compliance related matters. If you do not want compliance to be a competency of your firm, there are outsource providers in the industry that support your RIA by managing the day-to-day processes, with you in control of the oversight through the chief compliance function. Pershing has a list of industry partners who may assist you in your efforts to outsource some of your duties related to supervision.
|Office setup and infrastructure provided by company. Limited product menus could make transitioning client relationships challenging.
Given most client relationships are between the bank and the client, the opportunity to transition your existing clients is limited and usually takes longer than other advisory channel transitions.
Many advisors have restrictive employment agreements which may limit their ability to solicit relationships they made while being employed at their bank. If you are transitioning from a bank, consider consulting with legal counsel that specializes in advisor transitions and employment contracts.
|Office setup and infrastructure provided by company. Limited product menus could make transitioning your client relationships challenging.
Office setup is provided by wirehouses, decreasing your transition burden.
The creation of the "broker protocol for advisor recruiting" may streamline the transition for client transfers by limiting your legal exposure when you resign from one firm and seek to transfer client relationships to your next employer. This assumes you follow the guidelines outlined in the protocol and consider legal counsel prior to any transition.
|Office setup and infrastructure may be supported by the parent company or you may have the option to build on your own. Transferring client relationships is usually easier given the portability of products.
If you are considering moving your business to an independent broker-dealer, firms provide varying degrees of support to establish your new independent business. Some firms' support is similar to a wirehouse by providing ready-to-use office space and technology. Existing OSJ offices may offer similar support models.
For advisors seeking greater control, other broker-dealers offer less support, while you enjoy a greater payout annually. Some broker-dealers may provide financial and project management support for a transition.
|RIAs offer a broad spectrum of transition support from ready-to-use office space to transition assistance from existing staff.
By joining an RIA, you take advantage of the capabilities your firm has to offer. Many RIAs that provide contractor models are investing in their transition solutions by assigning dedicated operations resources to help ensure a smooth transition.
Pershing can help you find the right advisory firm to match your needs.
|By establishing an RIA, your new firm is responsible for client transitions. Custodians like Pershing provide teams and resources to help you streamline this process.
Starting an RIA requires that you build a game plan to establish your business and a roadmap for transferring client accounts. Planning your transition is the key to maximizing the retention of your client assets.
Many new advisors establish detailed plans to transfer client assets and coordinate with their custodian transition teams to help manage the transition.
|"Hub and spoke" model provides you with access to various product specialists at the local level.
Advisors are usually put into teams with the advisor leading sales and relationship management with the support of various product experts. This collaborative environment may provide you with a unique opportunity to build relationships with new and existing clients by tapping into the expertise of in-house experts.
|You are assigned client assistants and support based on production level. You have access to other experts and resources throughout the firm.
Your primary support network consists of your local branch manager and client assistant. Many wirehouses also enhance your support by offering product hotlines, internal wholesaling support, technology support and other value added resources.
Higher producing advisors may also get greater marketing support in the form of field marketing programs, event sponsorship and increased business development/relationship management budgets.
|Different firms provide varying degrees of support. You gain freedom to build your own support resources at the local level in exchange for keeping more of the revenue you generate.
Most advisors in this model leverage their broker-dealer for brokerage and advisory account access and retain core advisory functions such as marketing, relationship management and office setup/maintenance. These firms provide an assisted independent platform.
When researching potential broker-dealers, consider the following attributes.
|RIAs offer turnkey support models for advisors joining their firms. You gain the benefits of this model without having to build it yourself.
By joining an RIA, you have the opportunity for a "win/win" scenario by gaining all the advisory benefits of the RIA channel within the construct of a fully supported platform. Over the past few years, there has been a significant increase in the number of firms building platform support models for advisors to plug into.
Almost all firms provide the opportunity to leverage their experience and outsource functions to the firm including marketing, staffing, and day-to-day administrative support.
|You leverage the platform of an RIA custodian and build capabilities based on the unique needs of your business. You have the opportunity to build your firm the way you want and have complete control over staffing, HR, your expense structure and office.
If you want to maximize control, the RIA model may be the best choice for you. With the opportunity for maximum control, you are required to build out your own platform, including pay for the costs of establishing the practice. Larger advisory firms may hire or designate an operations manager or chief compliance offer to manage the firm's day-to-day responsibilities.
There are also providers throughout the RIA industry that outsource various advisory and business management functions. For example, you can hire an HR firm to help manage payroll and employee benefits.
|Limited practice value given the revenue and advisory contract is between the client and the bank vs. the client and your advisory practice.
As a bank employee, you may not have the opportunity to build true enterprise value. Instead, your opportunity is to increase annual compensation by exceeding production targets and earning deferred compensation plans.
If your goal is to build true equity in your practice, you may want to consider transitioning to a different channel.
|You have limited ability to monetize and build transferable equity in your practice. Retiring advisors may have access to "sunset" programs to transition business to another advisor in the branch office.
Client agreements are between the client and the wirehouse, with the wirehouse receiving the revenue and paying you as its employee. As a W-2 employee, the ability to sell your business is limited vs. advisors who are business owners and can fully monetize their businesses by selling their practices through M&A transactions.
You may have the opportunity to realize value for your practice by moving to another wirehouse in exchange for a sign-on bonus, which is usually paid back via a seven to nine-year forgivable loan. You are taxed at the capital gains rate on forgivable loan programs as a W-2 employee vs. an M&A transition. Advisors seeking to build true equity value in their businesses may want to consider independent advisory options.
|As an independent contractor, you become a business owner and increase the equity in the practice you are building.
As a business owner, you have greater ownership over your client relationships and the profitability of the firm you are building. You have the opportunity to build a succession plan for your practice that is strategic in nature and that can be integrated with your broader personal estate planning.
As a business owner, there may be significant tax advantages of establishing your own legal entity that is sold at some point in the future. You should contact your tax and legal for more information regarding the tax advantages.
|By moving to the RIA channel, you have the opportunity to maximize the value of your advisory practice. Many RIA affiliation models provide you with complete book ownership and/or the opportunity to become a partner in the firm you are joining.
The RIA model provides the greatest opportunity to monetize the advisory practice you spent years developing. Based on the affiliation model, you may be able to increase the value of your practice.
In addition, there are multiple ways you can realize the value of your business.
|The RIA and hybrid channels provide you with complete ownership and control over your practice and revenue. Advisors have the opportunity to build true enterprise value in a saleable entity.
The RIA model provides the greatest opportunity to maximize the value of the business you built. You also have flexibility to create succession plans that are unique to your practice, including a future sale to a third party or a transfer of ownership within your advisory business.
In general, RIA and hybrid firms are the most valuable practices in the private wealth industry. This is in part due to the fact that advisors own their practices and therefore may limit the risk to potential buyers. RIAs may also have access to broader capital pools given potential buyers are outside the construct of a larger institution and free markets create competition for sellers. RIAs are usually valued based on a multiple of free cash flow (firm profit after professional salary and overhead) or discounted cash flow methods. Contact a Pershing sales representative for a free consultation to discuss the nuances of your business.
The RIA model also provides unique advantages to your estate plan if you desire to transfer wealth to your heirs. Tax and legal professionals can help you uncover these opportunities.
Now, use our Firm Match Tool to find and compare Pershing-affiliated firms that best match your career goals. Thinking of starting your own firm? Contact us today to learn more about our broker-dealer and RIA solutions.
1 Cerulli Associates Report: "Advisor Migration: The Changing Landscape of Retail Distribution," September 2009