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Independent RIA, Megabank Alts . on the same level

There is an enduring myth about the independent RIA location. It has to do with investing, risk management, and lending—and, historically, it has had some foundation.

It used to be true that independent RIAs—which manage client portfolios as fiduciaries and typically charge fees on assets under management—did not easily source alternative investments, lenders and sophisticated insurance strategies for estate planning. can. Meanwhile, their competitors at large bank-owned brokerages have long been able to use in-house facilities for alternative investment, loan and insurance products.

But with increasing customer demand and better technologies, the competitive landscape in the wealth management industry has been bulldozed. In fact, the new layout for smart and agile providers such as Helo Technologies, Black Diamond and Dynasty Financial Partners could provide RIAs with benefits.

My colleagues and I have firsthand experience on this changed landscape. We founded our own RIA Employed Wealth Advisors in early 2021, after more than a dozen years at a Megabank-based brokerage.

how and why things used to be different

Previously, large brokerages were associated with in-house investment banking and asset-management arms, their brokers operating at an advantage over RIA advisors for sourcing alternative investments.

It didn’t matter too much in the 1990s, or even the early 2000s. In those days, yields from bonds and deposit instruments did their job by adding value to a portfolio while offsetting the underlying (and relative) price volatility of stocks.

When the US Federal Reserve slashed rates to nearly zero to control the 2008 financial crisis, fixed income became a strain on time-sensitive retirement portfolios (again, at least relatively). Meanwhile, going 100% equity is too risky.

Hence the search for alternatives was on, which was supported by consumer demand. Most retail investors want their money to operate at maximum risk-adjusted potential to fuel their retirement savings. Morning Consult says 92% of U.S. retail investors want better results from their investments, and Kiplinger says 90% of them prioritize protecting their retirement savings from market turmoil.

RIAs Can Get Anything National Brokerage (At Least)

Hence the rise of options in retail channels- investments with exposure to sectors such as private equity, venture capital, real estate and hedge funds. In fact, as an independent firm, we were immediately impressed by the investment and planning capabilities available in the independent channel.

In this broad investment category, “structured products,” another type of alternative investment, have also emerged. In providing downside protection (limiting what you can lose) in exchange for capped returns (limiting what you can gain), these vehicles are available on any number of markets, from stocks and bonds to market indexes, currencies and interest rates. Railings for the thing use the exposure options.

Generally, the return on a structured product is similar to the “return achievable” by “combining a bond with one or more options or other derivative instruments”. UBS,

Meanwhile, banks and fintech companies have given smaller firms access to a whole supermarket of alternative investments.

About 10 years ago, a consortium of global banks launched Simon, an online marketplace that gives financial advisors access to structured products. Nearly two years later, Halo was born with a similar mission but minimal minimalist, structured products to be more accessible to a broader swath of investors.

Bearing Insurance on Estate Planning

The result is improved pricing of these options for consumers, and greater scope for customization for advisors who have a more or less holistic view of their clients’ financial goals and commitments.

But independent RIAs can go even further on behalf of their clients. For investments with appropriate risk profiles and other specific qualifications, my team can structure alternative investments internally. An impetus could be a client getting wind of an impending real estate deal that still has a feel for capital. We may follow up with rigorous due diligence to find the intended deal structures best suited for our clients or them personally.

Similar to advances in investing, independent RIAs can now use insurance as a key to strategies that:

  • Provide an “equation” for hard-to-split assets (including family businesses and vacation homes)
  • Protect an inheritance from state or federal estate-tax increases
  • Avoid Probate Delay
  • Cover “final” expenses such as funerals and outstanding debt, which includes income tax payments

And while most independent RIAs do not have in-house lending facilities, they often help clients obtain competitive bids from various third-party lenders, with the process streamlined by technology. In a large brokerage setting, securities-based lending is common, but clients will only hear from in-house financiers.

Reality Trumps Even the Most Enduring Myth

In short, the changes I described point to the emergence of independent RIAs as “solution centers” that are in every way as resourceful as the largest banks, and are very attuned to the interests of their customers. are more aligned.

Meanwhile, consumers have become more aware of RIAs, whose advisors, like attorneys and corporate-board members, must conduct themselves as assistants to their clients at all times. schwab, More than half of consumers voted — 57%, Schwab says — prefer working with RIAs over any competing business model.

This attitude is gradually reshaping consumer preferences. The share of RIAs and “hybrid” firms—RIAs with additional brokerage affiliations—wealth-management assets increased from 16.8% in 2007 to 24.2% in 2018. The four largest US brokerages saw asset share decline from 42.6% to 34.0% at the same time.

Customers are smart. They know when an advisor is by their side at the table. And while RIA’s trustworthiness and straightforward economics have always made RIAs good for consumers, we see more growth in store as word gets out that the old barriers to alternative investments and dynamic asset-planning strategies have disappeared. .

Matthew Liebman is a founding partner and CEO of Employed Wealth Advisors in Blue Bell, Pa.

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