Hybrid RIA: Understanding the Practice Model

Going Independent: What to Know About the Hybrid RIA Model

The world of financial advice is changing rapidly, and more advisors are considering going independent. Becoming an independent Registered Investment Advisor (RIA) has long been a popular choice for advisors looking to break away from the traditional brokerage model, but there’s a newer player in town: the hybrid RIA. This model provides a wider range of options for clients, while also potentially increasing revenue streams for advisors. However, it also comes with some unique challenges that advisors should be aware of before making the transition.

In this article, we’ll explore the hybrid RIA model, including its benefits and challenges, to help advisors determine whether it might be the right choice for their businesses.

What is a Hybrid RIA?

A hybrid RIA is a registered investment advisory firm that offers both fee-based and commission-based services. This allows advisors to provide a broader range of services to their clients and can be particularly appealing to advisors who are just starting out on their own.

The hybrid RIA model can take a variety of forms, but the basic idea is that the advisor is able to offer fee-based services (such as financial planning, asset management, and retirement planning) alongside commission-based services (such as insurance and annuities). This allows the advisor to serve a wider range of clients, from those who prefer a fee-only model to those who prefer commission-based products.

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Why Choose a Hybrid RIA?

There are several reasons why an advisor might choose to go the hybrid RIA route:

1. Flexibility: The hybrid RIA model allows advisors to offer a wider range of services to their clients. This can be particularly appealing to advisors who are just starting out and want to build a diverse client base.
2. Independence: Like independent RIAs, hybrid RIAs are able to operate independently of a larger brokerage firm. This can give advisors greater control over their business and the ability to make decisions that are in the best interest of their clients.
3. Revenue Stream: The ability to offer commission-based products can provide an additional revenue stream for the advisor. This can be particularly important for advisors who are just starting out and may not have a large client base yet.
4. Client Needs: Some clients may prefer commission-based products, particularly when it comes to insurance and annuities. The hybrid RIA model allows advisors to serve these clients while still offering fee-based services to those who prefer that model.
5. Compliance: Hybrid RIAs are subject to the same regulatory requirements as traditional RIAs, which can provide peace of mind for advisors who are concerned about compliance issues.

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Challenges of the Hybrid RIA Model

While there are certainly benefits to the hybrid RIA model, there are also some challenges that advisors should be aware of:

1. Conflicts of Interest: The commission-based side of the business can create conflicts of interest, particularly if the advisor is incentivized to recommend certain products over others. This can be mitigated by establishing clear policies and procedures around conflicts of interest and being transparent with clients about the advisor’s compensation structure.
2. Compliance: While hybrid RIAs are subject to the same regulatory requirements as traditional RIAs, the additional complexity of the commission-based side of the business can create additional compliance challenges. Advisors will need to ensure that they have the necessary processes and systems in place to ensure compliance.
3. Complexity: The hybrid RIA model can be more complex than a fee-only model, particularly when it comes to tracking compensation and ensuring compliance. Advisors will need to be prepared to invest in the necessary systems and processes to manage the business effectively.
4. Client Expectations: Clients may have different expectations depending on whether they are working with the fee-based or commission-based side of the business. Advisors will need to intentionally work to meet the expectations of both sets of clients and communicate clearly about the services being provided.

TriCapital Advisors Can Help You Navigate the Hybrid RIA Model

The hybrid RIA model offers a compelling option for advisors who are looking to go independent. Advisors who are considering the hybrid RIA model should carefully weigh the pros and cons and ensure that they have the necessary systems and processes in place to manage the business effectively. Ultimately, the decision to go hybrid will depend on the individual advisor’s goals, client base, and business model.

At TriCapital Advisors, we understand the challenges and opportunities that come with the hybrid RIA model. As a hybrid RIA firm ourselves, we have experience helping advisors navigate the transition to independence and manage the complexities of operating a hybrid RIA. Whether you’re considering going independent or are already a hybrid RIA looking to streamline your operations, we can help. Contact us today to learn more about becoming a TriCapital Advisor.