Raymond James Plans Big Play to Keep RIA-Bound Advisors
June 25, 2019
By Mrinalini Krishna, Financial Advisor IQ
Hoping to catch advisors looking to go the RIA route, Raymond+James is considering providing an in-house opportunity for advisors who want to drop their Finra registration to transition to the RIA model.
Raymond James private client group president Scott Curtis says the firm is working on “an opportunity for advisors who perhaps want to drop their Finra registration, but operate as a fee-only practice. They’ll be able to do that under the corporate RIA and not necessarily have to exit Raymond James as either an independent advisor or potentially as an employee advisor, and go to an independent RIA to operate under that model.”
Curtis adds that a pilot for this program will likely be “up and running before the end of this calendar year.”
Some industry experts question how this offering will be different from any similar transitions Raymond James handles at present, or what value proposition it holds.
Raymond James, in a statement to FA-IQ, clarifies that this program “leverages the Raymond James Financial Services corporate RIA rather than requiring an independent RIA to operate as fee-only. Affiliating as an independent contractor branch owner today requires at least a Finra Series 7 license and registration. The planned Investment Advisor Representative-only option utilizing the RJFS corporate RIA will not require a Finra license and lessens the burden on branch owners by not requiring separate Form ADV filing, compliance program, cybersecurity program, or AML program for their own RIA.”
Speaking generally and not specifically about Raymond James, Jodie Papike, president of recruiting firm Cross-Search, says broker-dealers are “getting creative” to ride the wave of advisors moving to the RIA channel and to stave off competition.
“I think broker-dealers have woken up to the fact that they provide a lot of the same things that RIAs do, and they already have an RIA platform available to advisors but they haven’t necessarily had the infrastructure set up to make it so that someone could drop their licenses and just stay with them with their RIA,” says Papike.
“It seems like they’re just trying to no matter where you want to go, and what you want to do, they’re going to have a solution for it,” says recruiter Jon Henschen of Henschen & Associates.
“This is the first time I’ve heard of one where advisors want to go fee-only, but they want to be under the broker-dealer’s corporate RIA,” says Henschen. “I don’t see the reasoning of it. I usually see the direction reps go is they either have their own RIA or if they’re under the broker-dealer’s corporate RIA, they’re not fee-only. They’re also collecting trails, and doing some commission products as well.”
According to research released by Cerulli Associates last November, hybrid RIAs saw headcount double from 4.1% to 8.8% over the past 10 years. And Raymond James is not alone in trying to capture this wave. In May, LPL Financial spoke about launching a premium RIA channel.
Cerulli research further suggests that only 23% of advisors who had switched to the hybrid RIA model would choose to drop their broker-dealer affiliation and go completely independent. One of the big reasons for keeping their broker-dealer status is the ability to do commission-based products.
“The appeal of commissionable product access can’t be underestimated, even in a fee-based environment,” said Cerulli research analyst Marina Shtyrkov in a press release for the report in November 2018.
But opting for a corporate RIA instead of starting their own shop could be a mixed bag for advisors, with hefty pros and cons.
“It really comes down to liability, and how much work is going to go into it, resources that are going to be put into it,” says Papike about an advisor’s decision to stay with their broker-dealer’s RIA or aligning with another RIA instead of flying solo. “If you’re wanting to kind of offload the infrastructure, technology and compliance resources on to an RIA, then you would tuck in.”
But there may be drawbacks as well.
According to Henschen, aligning with a corporate RIA versus flying solo could hurt business valuations if the advisor wants to sell down the road.
To get those higher valuations of three-to-five times trailing revenue, you have to have your own RIA. Then it’s appealing to a bank, or to a trust company. But if you’re under a broker-dealer’s RIA, you’re kind of limited to that two-and-a-half times trailing revenue on pricing, if you want to sell your book,” says Henschen.
Another drawback could be custodial arrangements. Rather than being associated with a multi-custodial RIA, advisors who choose this option with Raymond James will have to custody their assets exclusively with the firm.
