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Should I dump my securities licenses?

The cons -- and mostly pros -- of moving from the the B-D to RIA or IAR model

Thursday, November 10, 2011 – 6:12 AM by Guest Columnist Jack Waymire
Admin:
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Jack Waymire: Given a choice -- and most of the time investors are not given this choice -- how would they compensate advisors they are dependent on for specialized knowledge, advice, and services.

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Paladin Digital Marketing
Consulting Firm, Marketing & Public Relations, Investor Referrals
Top Executive: Jack Waymire




Paul Beckis

Paul Beckis

November 10, 2011 — 7:14 AM

I say yes, dump the securities license. I used to be dual registered anyway but now my clients prefer the RIA model. I can’t imagine going back.

Brooke Southall

Brooke Southall

November 10, 2011 — 7:28 AM

Hi Paul,

What was the clinching factor or factors in letting go?

Brooke

Paul Beckis

Paul Beckis

November 10, 2011 — 7:59 AM

Hi Brooke,

Being able to tell my clients I don’t accept commissions to sell products and not having to be under the control of a B/D. It is farily simple to setup your own RIA and you can run the business on your own terms.

A D S

A D S

November 10, 2011 — 4:44 PM

I am a big proponent of the fee-based, wealth management model, but I also caution advisors against converting all of thier clients to fee-based. There have been instances where an advisor “wraps” the account to generate more income, but no additional advice or consulting takes place to justify the fee. In this instance, charging a commision as opposed to a consulting fee may be more suitable for the client. I tend to lean more towards the hybrid model.

Frederick Van Den Abbeel

Frederick Van Den Abbeel

November 11, 2011 — 4:57 AM

With all of the many solutions, products and methods of offering advisory fees to clients, as the EVP with a custody provider I’d say over 90% of those who initially think they need to go Hybrid choose Fee-Only at the end of the day. The largest obstacle is usually on existing VA trails the Advisor might be receiving but a good custodian firm should be able to offer options negating this roadblock.

Austin Bennett

Austin Bennett

August 28, 2013 — 10:49 PM

I have an RIA and ready to let go of my 7 securities license. Question 1) What is the next step selecting the best asset custodian? 2) Does giving up commissions include insurance products like life and disability?

Brooke Southall

Brooke Southall

August 28, 2013 — 11:04 PM

Hi Austin,

Let me know if you don’t get a response in a reasonable time and I’ll make sure you do.

Brooke

Frederick Van Den Abbeel / TradePMR

Frederick Van Den Abbeel / TradePMR

August 28, 2013 — 11:13 PM

Hello Austin, thank you for your comment. I represent a custody provider named TradePMR. The next step based on my experience would be to interview several different providers first. RIABiz has a wonderful directory of asset custodians from which you can refer to. http://www.riabiz.com/d?cat=64270

You may wish to cast a wide net first, interview all of the players then start dwindling down your search to the top 3 or 4 candidates. One useful approach might be to utilize a “Request for Proposal” method in which you submit the same questions to all of the custody providers you are exploring to then compare/contrast which would in turn help you decide which top contenders to further evaluate.

In regard to fixed insurance business (e.g. fixed annuities, life insurance, disability, etc., etc.,) if you continue to be properly State Insurance Licensed you may continue to transact this business. It is a matter of proper disclosure on your Form ADV and a compliance consultant can easily assist you with this. While it may be quite common for RIAs to be “Fee-Only” on the securities side, their are RIAs that are also licensed insurance agents as well. The ability to offer both is commonplace for some. Other Advisors choose not to work in the insurance realm and might simply outsource this work to another provider and/or insurance agent which they have built a relationship.

Jack Waymire

Jack Waymire

August 29, 2013 — 3:20 PM

Hi Austin:

The four dominant custodians for the RIAs and IARs who are profiled in the Paladin Registry are: Schwab, Fidelity, Pershing, and TD Ameritrade. I believe selecting a brand name custodian is important because they are a safer alternative that makes it easier to market RIA services – the custodian has physical possession of the investor’s assets.

Paladin works exclusively with RIAs and hybrids. A hybrid usually includes investment commissions. Many of the hybrids also accept insurance commissions because they do not want to route their clients to insurance agents who may have competing interests. Plus, I am sure they want the commissions. My take working with RIAs and hybrids is to dump your investment licenses to avoid relationships with a broker/dealer that may be a dinosaur. You can really do what is best for clients if you do not have securities licenses.

You don’t the same compliance department issues with insurance licenses. But I am not sure you can take the high road, fee only, if you retain them. I think you have to weigh the importance of fee only versus the amount of income you derive from insurance products. If you can afford to walk away from insurance products I would do it and forge a relationship with an agent you trust to handle insurance issues.

Frederick Van Den Abbeel / TradePMR

Frederick Van Den Abbeel / TradePMR

August 29, 2013 — 3:39 PM

Austin, with respect to Mr. Waymire comment, the “four dominant” custodians are not always the ones providing the highest level of SIPC, Excess SIPC and FDIC Insurance. Many of the custodian services providers such as TradePMR have underlying clearing-custody relationships in force provided by a very large entity. In the case of TradePMR, all trades are cleared-custodied with First Clearing LLC (an affiliate of financial giant Wells Fargo & Company). In our case, according to information publicly made available, First Clearing’s SIPC and Excess SIPC coverages are superior to those of some of the firms Mr. Waymire suggests.

Like I mentioned previously, I would first cast a wide net then narrow your search from that point. Certain “name brand” custody providers are not always indicative of highest protections and capabilities and I believe a wide review would be in the best interest of you and your clients’. Also, you may wish to review the FINRA BrokerCheck reports of each broker-dealer you are considering to review their regulatory report and record.

http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Bill

Bill

June 4, 2014 — 6:34 AM

I’d listen to Waymire on this one

DCJ

DCJ

September 17, 2019 — 5:08 PM
I work a hybrid model. Most of my clients invest-able assets are held fee based advisory accounts. There are some clients however where a commission model is CLEARLY in THEIR best interest and not mine. Also I am a financial planner. If I am helping people and businesses with sophisticated financial matters how do I NOT advise them on their life insurance. (side note it is amazing to me how many RIAs I run into who hold themselves out as Fiduciaries whose clients have 80% of their portfolio in Index annuities that paid 6.5% commissions)...but here is why I (very respectfully) disagree with Mr Waymire about being able to do what is right by my clients when I have a hybrid model. At every meeting with my clients I say some version of these words. "Mr. and Mrs Client, at any time I am completely willing to show you in actual dollars how much money I have been paid on the management of your accounts and for any commissioned transactions." Any time I do a commission transaction with a client. I will say a variation on these words (usually several times over several meetings) "Mr and Mrs Client, It is important that you know that this transaction will pay me a commission, I am completely willing to show you in actual dollars what I am going to make in commission on this transaction and upon your request I will also show you 2 other options that will pay me less. In which case I will explain in detail why I believe the product I am recommending is in your best interest." Very often I will get taken up on the comp question (both about fee based and commissioned based). I show a report with a dollar sign showing what was paid to me. Never had anyone say it was too much. Always "that is very reasonable" or "you need to get paid more" I've only had clients take me up twice on seeing the products that pay me less prior to moving forward with my recommendations. Both times it back-fired...but not how you would think. First time I showed how these other products would work but here's why I was using the other. I tried to put the competing products in their best light but the clients shook their heads "no" the entire time. I thought "maybe I am not putting my heart into this enough" So I stopped explaining why I like my recommendation and really tried to "sell' the benefits of the other tools to make sure I was giving them their fair shake. Client started to get borderline pissed. "we don't want this one, why are you switching gears on us." Second time I also showed a product that would work that would pay me MORE (significantly more)...spent 20 minutes talking the client out of that product (that SUCKED). If you are willing to be THAT transparent. NO issue with doing whats in their best interest. And the referrals RUSH in!
brooke

brooke

September 17, 2019 — 5:20 PM
Thanks DCJ for really explaining your thoughts -- with heart!

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