After looking at their options, more and more independent financial advisors are opting into the “hybrid” business model whereby they can conduct both commission-based brokerage business and fee-based advisory business.

“Net head count at RIA firms with dually registered hybrid advisors grew by 14.7% annually from 2004 through 2009,” according to Cerulli Associates in a report last year. “That’s three times the growth rate of RIA-only firms over the same period.”

According to practice management expert Nick Georgis’ “Taking the Hybrid Road” report for OnWallStreet, one of the reasons is that there are more resources than ever to help independent financial advisors transition to the hybrid model and the hybrid advisors like having the ability to retain existing brokerage clients and preserve the income generated by the commission type business.

That being said, Georgis’ report further explores the two types of hybrid business models an advisor can choose from: the Semi-captive vs. Dually registered, depending on the level of autonomy and choice you want to have in your practice.

If you are an independent financial advisor considering the hybrid business, this is an excellent and thought provoking article and a “must read” before you make the leap because there is a lot to consider.

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The Schwab Franchise issue popped up at TD Ameritrade’s 2011 Elite Advisor Summit’s opening session Q&A portion two weeks ago in Miami Beach.

It seems that an advisor asked Tom Bradley (president of TD Ameritrade) and Fred Tomczyk (CEO) about Schwab’s plans to open franchises with independent contractors.

Though they conceded they would be “watching with interest”, they made it clear they had no plans to start franchises, and were a bit perplexed as to why Schwab would want to focus on expansion physically outside their own branches and with the ongoing regulatory issue uncertainty . Tomezyk reiterated that TD’s expansion was focused on increasing sales force, not offices. (TD has added about 100 salespeople every year since 2008.)

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Despite the turbulent financial world, RIA firms expect to see their revenue growth up approximately 15% from 2009. According to the 2010 Charles Schwab RIA Benchmarking Study, “The RIAs we surveyed—870 of our clients, with more than $300 billion under management—estimated that their revenue will increase by a median of 15% this year, a result of continued client additions and the market rebound, which has done its part to replenish assets under management.”

With this growth, financial advisors need to learn how their firms can be most efficient. Because the advisor’s main goal is to spend the majority of their time focusing on finding new business, they need to find a way to decrease administrative and operational tasks. Most firms use a portfolio management system to manage their clients’ accounts efficiently. Some also use rebalancing software, trade order management software and/or financial planning software. According to Gunning For Growth, Bernie Clark states,

“…RIAs who used a dedicated rebalancing system in 2009 said they were able to perform that task in 15% less time (the median reported improvement) than when they were doing rebalancing manually or using a nonspecific software.”

Another important key to the growth of an RIA firm is using a client relationship management (CRM) system. Most RIA firms already use this to track their client interactions. Bernie Clark states, “…the CRM can become the window into a client relationship, moving well beyond the management of contacts and personal information to include more detailed client information, transaction and performance history, holdings information and client correspondence.”

There are many growth opportunities for RIA firms these days. Many clients from full-service brokerage firms are moving towards independent financial advisors. According to the Cerulli Report, “…RIAs, independent broker-dealers and dually registered advisors will nearly match wirehouses’ market footprint by 2012, taking a 39.3% market share of assets under management while the wirehouses take 40.7%.”

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Will other major wall street firms follow Wachovia’s lead and allow their brokers to become independent financial advisors?

Wachovia’s impressive roster of new recruits from January to May include brokers from major rival firms, particularly from UBS and Smith Barney.

Will they or other major Wall Street firms such as Merrill Lynch, Citigroup or Morgan Stanley open their doors to the semi-independent or independent broker? Perhaps not.

As reported by Evelyn Juan of Dow Jones Newswires on July 9, 2008, industry experts remain skeptical given the compliance risks associated with it. Pretty hard to monitor and control compliance of independent advisors who run their own business. It would definitely pose a risk to the firm.

Also, a fear of losing their top producers to the semi-independent or independent channel could halt the movement among other major firms.

BUT…if Wachovia’s model proves successful and productive in the months to come, we think that there will be others jump on the band wagon…interesting times these are!

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Are independent financial advisors in major wire house firms the wave of the future?

Wachovia Securities is alone among major brokerage firms in allowing brokers to be independent advisors, yet still affiliated with the firm. On July 9, 2008, Evelyn Juan, reporter for the Dow Jones Newswires, reports that this new trend has boosted Wachovia’s recruiting figures.

We  have experienced a huge increase in demand and hiring by Wachovia.

Juan reports that from January to May, they recruited 419 experienced financial advisors and 346 trainees, a record for the firm.

Major retail brokerage firms would typically recruit around 500 advisors in a given “good” year.

If a firm can accommodate both in-house and independent business, they are going to have an advantage in recruiting.

So, why this trend change and what are the pros and cons? Will other major wire house firms follow suit?

More thoughts on this to come…

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