Brand identification, information flow and client data are some of the most valuable components of an independent registered investment advisor shop. That's true whether you manage $10 million or $10 billion. Owning and controlling those components can mean the difference between success and failure.
With this in mind, an advisor must maintain the ability to define his or her practice and service offerings, and own the flow of information that results from day-to-day interaction with clients.
While this may sound obvious for an RIA or an investment advisor representative (IAR) looking to establish a relationship with a platform provider, it's more challenging than it sounds. True "white label" vendors are hard to find, and many make it difficult to fully separate a brand from that of the platform.
The choices facing an RIA or an IAR with $300 million (or less) in assets are familiar. Aside from joining an existing RIA, there are the traditional bank, independent broker-dealer and conventional wirehouse channels. Each option has historical shortcomings: poor service, hidden costs, limited investment options, corporate branding issues, poor regulatory history, and in some cases, variable annual payouts that create unpredictable income streams for the advisor.
Often, these firms try to obfuscate the obvious problems and induce recruitment by offers of upfront checks or forgivable loans to entice someone to join their operation. There is often a misalignment of values, with the big company culture clashing with the more entrepreneurial, client-centric approach favored by the independent advisor.
The benefit is that you outsource your back office and compliance. But the risk is that you are diluting your brand by contracting with a firm that isn't fully aligned with you from a philosophical or product perspective.
Client Data
There is the further issue of access to client data. Who controls this flow of information? Who benefits from the insight into client behaviors that analytics can provide?
RIAs and IARs need to review the firm's onboarding agreements and documentation and drill down to ask the essential questions. Further, they should ask for a copy of the firm's privacy policy as that document will clearly state the rules surrounding the client's information and data and whether the RIA or IAR has the right to retain a copy of the client's data.
There is the RIA direct-to-custodial channel for the RIA or IAR with appropriate asset levels. This business has been evolving rapidly in recent years. A decline in trading revenue and a search for economies of scale has triggered a wave of consolidation across the industry, resulting in fewer (and bigger) providers. This fact alone could be a reason for caution.
Mergers can be messy, requiring complex technology and cultural integration, which takes time and can create service issues for clients. Smaller RIAs may find themselves overlooked in this rush to expand.
