Industry Insight from Fred Barstein
Determining the Right Business Model for You

In times like these, smart people are reflective and act strategically taking advantage of a fluid situation rather than reacting out of fear.  Advisors, especially wire house reps, have difficult but exciting choices ahead.  Experienced retirement advisors have never been so busy reflected in their growing number of plans under management yet many are cash strapped as their revenue is tied directly to the market.  It is critical for retirement advisors to look ahead and evaluate the various options available to them which they should choose depending on the direction they want their business to take.  Just remember, not making a decision is actually making a decision.

The first question is the type of services you intend to offer.  Obviously, the core of your business is retirement, but that is very generic.  What size market do you want to target?  Do you want to focus on corporate retirement plans advising the investment committee only focusing on fiduciary liabilities, investment analysis and vendor searches or do you plan to expand into advice to participants?  Do you want to only work with highly compensated employees or do you want to delve deeper into the employee population with an eye toward rollovers?  Will you look to go beyond 401(k) plans to other types of DC, DB or non-qualified plans?  Is it important to align with a local TPA or even bring one within your practice to control all aspects of the plan? Does a total employee benefits practice, including health care, make sense for you?

Next, you need to evaluate the right regulatory situation which will best complement your business model.  It will almost be essential to have a fee based option but you should consider charging flat fees to some clients, especially larger ones, so that a percentage of your revenue is not so volatile.  The option of selling your practice appears to be off the table, other than to a couple of aggressive wire houses, due to the near collapse and low stock price of previously available alternatives.  The main decision is whether to stay at the wire house, if that’s where you are, go to an independent broker dealer like LPL, or become an RIA without a FINRA license relying on support from organizations like Schwab, Fidelity or TD Ameritrade.  Wire houses have a retail brand, which is important if you plan to have a retail IRA rollover practice, but they are restrictive on compensation schemes. Home office support, once a strength, is eroding as they suffer deep cuts across the board.  Independent broker dealers offer high payouts and flexibility but little if any support or retail brand.  Specialty broker dealers offer support and high payouts but will most likely be gobbled up sooner rather than later and have no retail brand.  RIA’s have the highest payout and most flexibility but you are on your own in the truest sense of the word with limited brand or support.

Many pundits say that the wire houses will finally experience the runoff that everyone has predicted for years because their biggest benefits, brand and deep pockets, have become a liability.  Larger retirement advisory practices will most likely move to the RIA model but those that want to service IRA rollovers may need the retail services of the independents if not from the smart wire houses focused on leveraging their retail brand.  In addition to extraordinary support, specialty firms offer camaraderie which should not be underestimated.  Some smart advisors are partnering with benefits firm, some of which are housed within insurance broker dealers.  Regardless of the choice you make, remember to be thoughtful and not have the answer be made for you because you neglected to do the analysis or you listened to the last compelling recruiter.

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