The Case for an Advisory-Only Practice

Many advisors have spent their entire career in the “Broker-Dealer World,” even as their business mix has gravitated more and more to Advisory.  For these representatives, the reasons for moving to Advisory-only are compelling, but the idea of leaving the familiar B/D world is scary. 

Advantages of an Advisory-Only Practice:

  • Regulatory and Compliance:

    • The fee-based Advisory model is generally viewed as less conflicted and is therefore favored by regulators.

    • Advisory-Only practices are governed only by the SEC.  Hybrid BD/RIA practices must comply with both the SEC and FINRA. This distinction usually means that RIAs have fewer compliance hoops to jump through, reduced paperwork, etc.

    • No continuing education requirements.

  • Lower Costs:  You will eliminate many B/D costs if you move to Advisory.  The only costs you will have will be pass-through costs.  In total, you will likely save $5000 annually by associating with LexAurum and leaving your BD affiliation.  Clients will likely also experience significant savings on trades and other B/D expenses.

  • Higher Payouts:  In most cases you will have a higher payout, likely much higher.  This is especially true when the BD’s admin fees are accounted for.  Contact us for more information on LexAurum’s Payout Grid.

  • Higher Business Valuation:   Recurring-revenue practices are worth more than non-recurring-revenue practices, and advisory-revenue businesses are typically worth the most. 

Disadvantages:

  • No More Commission Sales:  You will lose the opportunity to do business that is solely commission based.

  •  Loss of Trails: You will lose commission trails that are due to you if you leave your BD affiliation.  Depending on the product type, it is often possible to transition this business to Advisory and replace trails with fees, as long as clients are not disadvantaged.   

  •  Loss of Licenses: B/D licenses, like the Series 7, will lapse after two years of being unaffiliated with a broker dealer. 

  •  Loss of B/D E&O Prior Acts Coverage: In many cases this prior-acts coverage can be purchased separately.  However, for DPP business, prior-acts coverage will be expensive and may not be available at all.