Just last month, we saw Voya sell itsIBD operations to Cetera, while AdvisorGroup has been on an acquisition tearof its own, rolling in several well-knownIBDs in the past couple of years. At thesame time, LPL is completing its tie-upwith Waddell & Reed, and the list goeson. In a consolidating industry, scalebecomes ever more important, and thatis where the action has been.
What will the IBD space look like goingforward? Perhaps there are someclues to that future in how themost successful and fastest-growing segment of the wealthspace — the independent RIA —has evolved.
RIAs are truly independent,meaning that their fiduciary models and compensation are not tiedto any product or platform. Theyexist as separate entities, chargea fee for services rendered and are paidby the client, not any product. This hasthe double benefit of allowing RIAs to“shop the street” for the lowest-cost,highest-quality products and servicesfrom any provider they recommend totheir clients.
By unbundling advice from a product transaction, all sorts of innovationsin product structures, cost eliminationsand business operations are happening, which are completely rewriting thewealth management playbook.
Most notably, when it comes to technology, RIAs can hand-craft their technology stacks to customize and choosethe components they want to operatetheir businesses. And with RIAs’ outsized growth, there has been an amazingrenaissance in the advisor technologysegment, attracting investment fromsome of the tech world’s most successful and influential platforms to feed thisgrowing demand.
In fact, one of the main drivers of
the “breakaway advisor” movement has
been for IBD advisors to seek out the
superior technology they can access as
an independent RIA, rather than making
do with the “lowest common denomina-
tor” technology of their BD.
The result we will see is the “RIA-ifying” of the IBD industry and theirplatforms, and they will find growthopportunities and remain alive to sus-tainably support their advisors. Earlyefforts of the RIA-ifying movementmanifested in most of the major IBDscreating RIA custody platforms. This
was done as a defensive measure topersuade their breakaway advisors toat least stay with them in a custodyrelationship rather than move all theirassets to one of the formidable RIA-custody competitors and lose the advisor and assets forever.
But beyond just an RIA custody play, thenew paradigm will require these IBDsto change the advisor-client experiencethey are offering to provide more openarchitecture, better technology, low-costproducts and service models that arenecessary for advisors to succeed in amuch more challenging and competitiveenvironment.
One example is Cambridge, one of
the most respected IBDs in the industry,
which recently launched its new advi-
sor workstation and operating platform,
Clic, to much fanfare. Leveraging cloud-
native technologies to bridge the gap
between the back-office systems and
integrate those with the most popular
RIA applications for financial planning
and client portals, Cambridge is provid-
ing advisors with choice and flexibility
in how they want to consume technol-
ogy and run their businesses — the hall-
mark of the RIA model.
Along these same “RIA-ifying” lines,
LPL has announced probably one of
the bolder steps to invest in the sup-
port tools and business services that
independent advisors need to stay
afloat and offer them to outside advi-
sors. This is particularly important as
the wealth space becomes even
more competitive, with new digi-
tal players like Goldman Sachs
and the impending launch of
the Schwabitrade Death Star —
soon to be operationalized and
unleashed on both the retail and
RIA custody stages.
respected IBD, also has launched
business consulting services to
help advisors run better businesses as
well as increased the number of firms
they support as IARs.
Because LPL and Commonwealthplan to offer these services to outsideadvisors as well, this is solid evidencethat the IBD model does not have to belimited to antiquated, commission-basedframeworks. IBDs finally can emergefrom their legacy models to become trueopen architecture platform and technology providers, facilitating advisor success across affiliation channels.
This RIA-ifying movement portendsbrighter days ahead for this once-glo-rified but now embattled financial services sector. “Innovate or die,” PeterDrucker famously said, a key themeplaying out in real time here in the independent wealth space.
Timothy D. Welsh, CFP is president, CEO andfounder of Nexus Strategy, LLC, a consultingfirm to the wealth management industry. Hecan be reached at email@example.com oron Twitter @NexusStrategy.
“Innovate or die,” Peter
Drucker famously said,
a key theme playing out
in real time here in the
independent wealth space.