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RIA or Broker-Dealer: The Pros and Cons of Each

09/24/2021 EST

Just like your clients, no two financial advisor practices are alike. When determining what kind of business model is right for you, there is a wide spectrum of factors to consider. For example, how large do you want your client list to be? Do you want to offer targeted financial solutions tailored to your clients' needs, or work within a pre-established foundation to deliver financial solutions? Your unique practice requires an approach that will best serve your client base, and each model comes with its share of pros and cons.

In this blog, we will explore the two major approaches you can take: being a registered investment advisor (RIA) or working with a broker-dealer. Let's dive into the differences between an RIA and a broker-dealer.

The RIA Approach Pros

As an RIA, you work as an individual. You have freedom and ownership over your business as a small business owner, which provides the flexibility to charge a lower fee and avoid the cost of a large overhead.

Working as a single entity allows you to build a relationship with your clients that tends to be more personalized. Often there are less restrictive rules or practice guidelines to follow with the solutions you can recommend, enabling you to serve your clients' best interests in a manner of your choosing.


Because you are not backed up by a larger organization, you'll need to manage your clients' needs and your business all by yourself.

Dealing with all of your clients' needs on a personal level can be helpful to build a solid relationship but giving all that individual attention will take up precious time and resources. Your firm may run thin on manpower taking this approach, so you may have to seek out outside help from consultants or turnkey asset management platforms (TAMPs) to adequately serve your clients.

The Broker-Dealer Approach Pros

As an advisor working with a broker-dealer, there is usually much more structure to your day-to-day. Your practice can offer different services to different clients, all with varying needs. With the power and backing of a sizable firm, you have access to additional technology solutions, vetted financial solutions, and knowledgeable peers to help you support your clients. Because your organization has a pre-established system set into place, you can easily walk your clients through your firm's process and offer a wide range of services.


Because broker-dealer firms have their own systems already set up in place, you may run into a situation where a client needs something that is counter to your firm's protocols. In this situation, you may be asked for a product that is outside the typical investment strategy, which may require you to seek solutions outside of your broker-dealer.

Other Options to Consider

There are other models your practice can take outside of just these two options.

For an advisor who wants to switch from the broker-dealer approach to an RIA approach, doing so can be intimidating, especially if you are starting an entirely new business from scratch. Joining a pre-established RIA (or "tucking in") can mitigate those fears of establishing your own infrastructure.

Or, financial advisors often switch to a hybrid model to ease their transition. As a hybrid firm, you can dual register as an RIA and broker-dealer which allows for you to operate with both a fee- and commission-based practice. This approach can provide the flexibility of an RIA with the added support of your broker-dealer.

The Bottom Line

To reiterate, an RIA approach offers more flexibility and will allow you to personalize the services and relationships you have with your clients. A broker-dealer approach provides your practice with a firm structure, with an extensive network of solutions at hand, and is ready to go for your client.

You must remember that there is no right or wrong choice between being an RIA or broker-dealer for your practice. As your business develops, it is important to keep in mind there many options for improving your approach. Over time, it may shift naturally between these models as your client base evolves.

Whether you strive for one-on-one relationships or the support of a large institution, AssetMark's solutions can be tailored to meet you where you are on your journey. Because we help anticipate potential changes your practice may go through, we tailor our services to minimize any administrative burden that comes naturally with company growth. Whether it be acting as a resource for an RIA or by providing unique innovative technology solutions and investing framework for a broker-dealer, AssetMark works with you, side-by-side, to provide you with the best solutions for your advisory needs. Request a consultation today.


AssetMark Financial Holdings Inc. published this content on 24 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 September 2021 08:41:08 UTC.

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