Is the Hybrid Model Hype or is it the Real Deal?

Daily I field the question from clients asking about the RIA and Hybrid business models and whether it is the right model for their business. My clients come from all backgrounds; Independent BDs, Banks, Wirehouses, and Insurance firms. They share a common thread in their desire to best service their client, however disparate that client base may be.

So what is it about the Hybrid model that is so attractive? And is it founded on principal or is it marketing hype to get advisors to move to a particular firm?

The Hybrid business model is designed to provide a financial advisor with the best of the fee-only world combined with the tradition and support of a broker-dealer. Advisors often use their own RIA to support clients with a fee for service while being able to retain and service the broker-dealer revenue of commission product that has served many of their clients in the past. In many cases, advisors are adding a new source of revenue by offering a new service.

Each practice I evaluate is different because of the owner/founder that has created a unique business based on their personality and the client base they founded their business on. The way an advisor interacts and trains staff, services their clients, charges for services, and their ultimate business goals all factor in determining the right business model for their business. Yet when a client is deciding between an the independent broker-dealer, the RIA, or the Hybrid model that slots in between, there are central factors that are important to consider:

  1. Pricing – how much is your client paying in total costs to your practice and to the investment solutions they are invested in? Can a different custodian or broker-dealer reduce that cost to your client and enhance their performance?
  2. Flexibility of Service – what services that you provide are most important or appreciated to your client? Are you a full-service planner? An absolute performance strategist? Or some blend of each? Creating a platform that allows you to capitalize on your service skill set increases your value in the client’s eyes.
  3. Marketing – is controlling your message important to your practice? Do the flexibilities of the RIA create an opportunity to increase your client base or do you consider the interpretive guidelines too risky? Would you like a broker-dealer to support you and mitigate risk?
  4. Ownership – is the message of being a locally owned firm important to your client base or do you like branding and identifying with a national or recognizable entity? Is there a balance of both extremes that you find attractive?

Your business is distinct, yet we have an industry that is making it harder for clients to distinguish the difference between financial services firms. Through detailed research and thorough analysis an advisor must consider all angles when choosing their business model. The right custodial, broker-dealer, or firm partner can have a large impact on your business and on your psyche as a business owner.