Financial advisors and wealth management professionals widely agree that they want to be independent, but they disagree on the meaning of that word.
The notable variation comes from how brokerages and registered investment advisory firms have changed over the past five to 10 years, according to Michael Kitces, the planning entrepreneur, writer and podcast host who’s co-founder of advisor billing software AdvicePay and registered investment advisory firm platform XY Planning Network, as well as the the head of planning strategy for St. Louis-based RIA Buckingham Strategic Wealth.
“If you look at the traditional brokerage world, for the better part of 30 years now, we’ve had this range of options of how you can affiliate your firm,” Kitces said. “We framed RIAs as this pinnacle of independence because it was more independent than the broker-dealer.”
Those once-distinct lines are blurring as the largest RIAs grow to the size of the biggest brokerages and those broker-dealers take on more characteristics of their RIA rivals.
As part of Financial Planning’s feature on the changing nature of independence in the profession, the slideshow below highlights the many issues involved with how planners and their clients may view the concept of independence. In addition to Kitces, the following advisors, entrepreneurs, executives and experts shared their insights:
Rich Steinmeier, managing director and divisional president for business strategy and growth with Fort Mill, South Carolina-based independent brokerage and wealth management firm LPL FinancialAbby Salameh, chief growth officer of Birmingham, Alabama-based hybrid RIA firm RFG AdvisoryJodie Papike, CEO of Encinitas, California-based independent advisor and executive placement firm Cross-SearchPeter Mallouk, CEO of Overland Park, Kansas-based RIA firm aggregator Creative PlanningTom Rippberger, managing partner of New York-based advisory and brokerage network Affiliated Advisors
Technology is driving much of the continuing momentum toward independence — and the accelerating changes in the field of planning, Salameh said.”It’s a hell of a lot different than it was even 10 years ago. There’s so much new technology that makes it easier, smarter and faster to go independent than it was 10 years ago,” she said. “Back then we used to have to put together packets for every client, get wet signatures, then come back and punch in the new account numbers. The transition is so much easier.”
To be independent, an advisor needs to meet “a few criteria,” according to Mallouk.
“You have to be part of an RIA. You have to be a fiduciary all the time,” he said. “You don’t have proprietary product — if you have proprietary product, really you’re in conflict with the client automatically.”
Within that general criteria, though, advisors will begin to wonder whether the traditional perspective that a 1099 independent contractor status confers independence is fully relevant anymore. For example, Mariner is one of the largest and fastest-growing RIAs, and Bicknell views either 1099 or W-2 status with the firm as independent, he said.
“The 1099 is probably easy to understand: They’re running their own practice. They’re doing everything themselves. We just have a platform for them,” Bicknell said. In contrast, the W-2 employment comes with offers of more services such as an advisor playbook, operational systems, tax planning, practice management resources and investment solutions — “all to elevate the value proposition and the client experience,” he said.
“But none of that is mandated,” Bicknell added. “Everything is at the advisor’s discretion as they see fit to serve their client the best that they think that solution will do.”
Others use alternative rubrics for deciding whether advisors are doing enough to be fiduciary advisors making recommendations that put the client’s best interests first in every situation — or being independent, in other words.
To gain membership in NAPFA, advisors cannot have any relationship with a brokerage or sell insurance directly because the organization is for fee-only advisors, and those lines of business pay commissions, Alt noted.
NAPFA is “trying to propel the industry forward so that we can educate consumers to understand that there are a lot of choices out there and that they need to be able to understand so that they can make the best choices for themselves,” Alt said.
Scroll down the slideshow for nearly three dozen takes from experts organized into five categories related to the shifting, evolving concept of advisor independence. To read the feature story taking a deep dive into those themes, “Independence? It depends,” click here. To watch a live Leaders Forum discussion about how advisor independence is changing, click here. And check back tomorrow for a ranking of the 10 companies that added the most brokers from other firms in the past decade.