Independent Broker Dealer, Hybrid, RIA or Tuck-In?

The many structures of being an independent financial advisor

I wrote a story for InvestmentNews back in March that broke down the different structures an independent advisor could choose.

InvestmentNews Story

While not much has changed since then, I still find this topic to be at the forefront of advisors minds. Advisors consistently ask me whether they should set up their own RIA or become a hybrid advisor at a broker dealer (meaning having your own RIA while maintain your licenses at a broker dealer). Surprisingly, I also quite frequently get asked about shutting down an RIA and either tucking in under a larger RIA or an Independent broker dealer. While it’s fantastic for advisors to have so many options on how to structure their business, it can be extremely difficult to assess the pros and cons of each structure.

The truth is, the structure an advisor chooses is almost always based on something that is unique to that person or group. What one advisor prioritizes, fears or wants is typically unique to their situation. I think the best way to explain the factors that play into these decisions is to describe a real life example of an advisor I have worked with as their practice and priorities have changed over time.

Bruce is a client of mine that came to us several years ago feeling like he had outgrown his Independent broker dealer. He felt limited in what he could do to market his practice. He had grown to over $100 million in assets and wanted to set up his own RIA. Bruce was motivated by two things-

  • More freedom
  • Increased net compensation

Long story short, Bruce did in fact leave his broker dealer, we found a new custodian and he has been running his own RIA ever since. Here is the interesting thing though; Bruce recently reached back out to me with new pain points. After running his own firm for some time now, he is feeling a significant amount of compliance pressure. He fears a potential audit and is not sure that being completely on his own is best for him. He also underestimated the compliance cost of running his own firm.

For Bruce and others like him, tucking into an RIA might be the best option, but can also be complicated in finding the right fit. Advisors need to weigh pricing vs. what is being provided. They also need to make sure the structure of a potential RIA aligns with their book of business. For example, if an advisor runs their own models, is the infrastructure in place to support this?

These are just a few of the things that need to be considered in this model.

While every form of independence has it’s pros and cons, prioritizing what’s most important to you is the best first step to figuring out which model is best for you.


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