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Transitions Magazine

Industry News

Controversial white paper says retail brokerage business model on steady decline

Bob Veres, Publisher of Inside Information

A new industry white paper, entitled The Future of the Advisory Profession, has been published by the Inside Information newsletter service—a well-respected publication that follows key trends and practice management innovations in the independent RIA world. Its conclusions are provocative: it says that we are just now entering a period of remarkable opportunity for independent RIAs, comparable to, but more dramatic than the early 1990s, when smaller RIA firms experienced rapid growth in client assets, revenues and

owner compensation. At the same time, the white paper predicts that the retail brokerage business model will become less robust and relevant in an increasingly fiduciary world. At some point within the next five to ten years, these larger firms will have to decide whether they want to support and maintain their system of customer-facing brokers when they are held to a standard that makes it increasingly difficult to recommend in-house products, separate account providers who share revenues with them, or investments out of the brokerage firm’s own account. The prediction: at some point, these firms will decide that the liability is greater than the profit potential for their retail divisions. They will keep their more profitable investment banking and institutional services, and today’s brokers will be left to fend for themselves. “Those who are prepared to make the transition from broker to RIA will survive this difficult transition,” says Bob Veres, Inside Information editor and author of the report. “In fact, many will thrive, because their teams will be able to leave as full-fledged planSeptember 2010

ning firms, with more marketing and internal management expertise than many of their RIA competitors.” The first half of the paper offers an overview of the practice management issues of the future, and predicts a phase transition in the RIA world from practices to businesses, as a result of several drivers: 1. Advisors entering the shadow of retirement, and needing to create transferable value in their businesses before they sell internally or to external buyers. 2. The need for more scale to meet greater compliance requirements. “The independent RIA world will still have far less compliance issues to deal with than brokers regulated not only by FINRA but also by their own sometimesparanoid compliance departments,” says Veres. “But they’ll have to have documented procedures in place to show that they’re making sound investment recommendations in light of the fiduciary standard. Many advisors right now are recommending funds with above-average performance in the past, and charging asset management

In the News

Industry Influential, Bob Veres, Predicts Golden Age for Independent Advisors


Profile for Financial Forum Inc.

Transitions Magazine - September 2010  

Business Management for Independent FInancial Advisors

Transitions Magazine - September 2010  

Business Management for Independent FInancial Advisors