For advisors who are just starting out or veterans who are contemplating new models for their practices, going independent can be alluring.
Independence promises autonomy, freedom from corporate bureaucracy and the satisfaction of building your own business.
But it can also bring headaches and profound challenges, particularly on the regulatory and compliance front. In an
Those requirements can be especially onerous in what appears to be a climate of increasing SEC scrutiny, according to a panel of industry insiders at the Financial Services Institute's OneVoice conference, which was streamed online. This week the
"They're not messing around anymore," said Colleen Bell, executive vice president of operations and chief fiduciary service officer at Cambridge Investment Research.
The challenge of keeping up with regulatory requirements is so serious that industry observers suggest that the truly independent, small RIA model where the principal might also handle compliance with the aid of an outside vendor is no longer viable.
"Gone are the days of getting compliance in a box for $5,000 and surviving for a year," said Desireé Sii, president and CEO of SagePoint Financial. "Advisors truly don't know what it entails until the regulator's in their office, and then it's too late."
But the lure of independence is strong. In its 2020 report on advisor movement, Fidelity reported that, on a percentage basis, the independent RIA model had the most growth of any segment. That’s based on data from research and consulting firm Cerulli that counted advisors who moved to that channel compared with those who left it. By contrast, wirehouses and regional broker-dealers both saw net losses in their advisor ranks.
Bell still sees the independent model as practicable but urges advisors to have a clear sense of why it is the right path for their careers. If an advisor's goal is to launch a firm that in turn goes on to acquire numerous other RIAs, independence might make sense. But she cautions advisors to have a realistic view of the increasing compliance expectations of the SEC and how they intend to meet those hurdles.
"If you are going to be SEC-registered, you have to make sure that you have a continuous process that you are updating your policies, that you are updating your disclosures, that everything is consistent amongst your policies and your disclosures and your actions, and that everyone in the firm is aware of all those policies and procedures and disclosures and that they're delivering those disclosures to your clients," Bell said.
"So it has to be very systematic," she added. "If you are a one-person office, going and creating your own RIA is probably not going to be ideal."
