It’s been a bit of over a 12 months since Ed Swenson, the previous Dynasty Monetary Companions COO and co-founder, joined Osaic (then Advisor Group) as president of RIA Options, a newly created position.
Swenson was tasked with creating and managing Osaic’s RIA-only and hybrid channel technique together with growing a company RIA platform for fee-based advisors. He’s additionally been constructing out a W-2 worker affiliation mannequin for RIAs who use Osaic. Advisors who select to affiliate that manner come beneath Osaic’s company RIA.
Swenson not too long ago spoke with WealthManagement.com about what his crew has completed within the final 12 months, what the RIA affiliation fashions seem like, and the way Osaic’s RIA channel differs from different companies.
The next has been edited for size and readability.
WealthManagement.com: What have you ever been constructing at Osaic for the final 12 months?
Edward Swenson: We’re a really totally different firm now than Osaic was two or three years in the past. We’re ending up early subsequent 12 months in Q1 the [what we are calling the] Journey to One, which permits us to function as one firm beneath one dealer/supplier. And a part of that initiative, which is essential to [CEO] Jamie [Price] and the chief crew, which I’ve joined, is to extend our capabilities on the RIA and advisory a part of the platform. I feel we carry a novel scale to {the marketplace}. And scale issues extra now than it ever has in wealth administration. And I feel if you concentrate on us like a wealth administration platform, my job is to leverage that scale on behalf of the RIA ecosystem on the market.
Whether or not it means totally different affiliation alternatives, whether or not it means leveraging our product platform capabilities, whether or not it means leveraging what we name our “benefit firms,” that are our belief, brokerage funding financial institution and asset administration capabilities, on behalf of advisors. I additionally throw tech in there. All of these items are what I consider will drive progress within the RIA channel and ecosystem for the subsequent a number of years.
WM: Are you able to increase on what the totally different affiliation choices are?
ES: Since Jamie Worth took over in 2016, our conventional enterprise might in all probability be outlined as conventional dealer/supplier and hybrid. That’d be our core enterprise. With the acquisition of Infinex about two or three years in the past, we added the establishments channel, so that might be small banks and credit score unions. In the US, that’s a few $3 trillion whole addressable market.
We’ve additionally added the W-2 affiliation. We added that beneath my management within the third quarter of final 12 months. W-2 would permit us to buy books of companies and have advisors on our platform in a W-2 capability, not a 1099 capability. That’s a few $14 trillion addressable market within the U.S.
And the final one could be our fee-only affiliation mannequin, and we’ll be standing that up subsequent 12 months. And that might permit of us to drop their FINRA licenses and function off of the Osaic chassis, so getting all the advantages of our scale however in an SEC-only, fee-only capability.
WM: What does that W-2 mannequin seem like?
ES: There are a couple of themes in wealth administration, and one is that the RIA market is a comparatively fragmented market. The W-2 channel permits us to buy books of enterprise. You’ve seen a number of gamers on the market doing that within the final decade. Curiously, I feel the precise profit for Osaic is that we have now a number of advisors on our platform who will ultimately retire, and that is our potential to assist these companies by shopping for them. There’s little or no friction concerned in that transaction, proper? You don’t should repaper your accounts; you don’t should go to a different agency; you don’t should disrupt your shopper relationships. We’re comfortable to have that advisor stick round for 3 to 5 years. Nevertheless it provides them certainty on what their remaining succession plan might be, and it permits us to maintain these property on-platform.
Now we have about 11,000 advisors. So we’re seeing a number of curiosity internally for these advisors which might be attending to that time of their profession the place they wish to retire or they wish to transition their guide. The W-2 mannequin permits us to do this, moderately than them having to go some other place.
There are about 16,000 RIAs on this nation. Half of these have beneath $100 million in property. This market will proceed to consolidate over the subsequent decade. We wish to be a part of that development. We wish to consolidate that. And the W-2 channel permits us to buy these books of enterprise. For these outdoors who need our scale, our capabilities, and our platform, they’ll be a part of us by way of this new W-2 affiliation mannequin.
WM: For advisors who be a part of that affiliation mannequin, are they working beneath Osaic’s company RIA?
ES: Sure, our company RIA and ADV.
I’d say, this can be a comparatively unbiased W-2 mannequin. That means, we don’t power everybody into mannequin portfolios or product.
WM: Have you ever performed any of these offers but?
ES: We introduced on a $1 billion crew from Goldman Sachs on the finish of final 12 months, run by Neal Slafsky, and we’ll have a number of bulletins earlier than the tip of this 12 months.
WM: What does the fee-only mannequin seem like?
ES: I’ve one other thesis that extra advisors will look towards company RIAs as a vacation spot. Numerous the motion has been towards unbiased RIAs the place you arrange your personal ADV. What I’m seeing is a phenomenon that I name a “boomerang advisor,” somebody who went out on their very own as an unbiased advisor and is coming again to a company RIA. They’re doing that as a result of the regulatory atmosphere is getting extra complicated, and the know-how atmosphere with cybersecurity points is getting extra complicated and costlier. And so they want to leverage somebody like ourselves to deal with parts of that whereas they give attention to prospecting and their current purchasers.
I feel there’s a misnomer that should you function on another person’s ADV, you’ll be able to’t develop your enterprise worth. That’s not true. A company RIA lets you offload a number of that heavy lifting to a corporation like ours however doesn’t prohibit you in any manner from having a liquidity occasion or promoting what you are promoting sooner or later sooner or later. I consider a number of of us really feel that you need to have an unbiased RIA to do this and that’s not the case.
Ostensibly, that ought to permit you really to be extra worthwhile and get the next a number of while you do promote or exit sooner or later.
WM: What are you constructing out beneath that affiliation mannequin that you just don’t at the moment have?
ES: We’re very deep on hybrid RIA the place folks leverage our platform, however there’s all the time a component of FINRA, or dealer/supplier fee, annuity, life insurance coverage. However fee-only means you drop your FINRA license fully, so this entity is totally different. A special platform, totally different insurance policies and procedures, and new ADV that Osaic will launch.
You want know-how that speaks particularly to fee-only and RIA and never brokerage. Now we have an built-in know-how stack referred to as One Hub. You are taking out all of the fee and brokerage parts of that and rebuild it particularly for an RIA. We’ve additionally labored on constructing a crew that may service the RIA. It is parts of bringing my previous life to this group in a really pure RIA fee-only atmosphere.
WM: Has the agency consolidated all of its company RIA entities?
ES: It’s within the strategy of doing that, and that’s a part of the Journey to One. For those who have a look at our advisory companies and company RIA, it’s over half our property. That’s all being consolidated into one channel, the RIA Options channel.
WM: Do you’ve got any advisors signed on to that fee-only mannequin?
ES: Now we have many at Osaic which might be serving to us road-mapping this and considering by way of what we must be leveraging. Now we have many who’re wanting ahead to dropping their FINRA licenses fully and becoming a member of this affiliation mannequin. Osaic’s very totally different now than it was three, 4 years in the past, the place now we’re competing in a number of locations due to our scale and dimension.
WM: Which custodian will you employ for that channel?
ES: We’ll use NFS and Pershing for custody.
WM: You talked about earlier that your division would leverage product platform capabilities. What do you imply by that?
ES: There are three actually cool product issues that we’re doing currently. One, I’ve been a really massive fan of direct indexing over the previous couple of years, so we’ve elevated our product suite. We have only in the near past carried out Canvas, which is a direct indexing product.
Within the final 15 years, folks have gone from energetic to passive ETFs and passive mutual funds. This lets you have passive however with the tax harvesting and tax alpha. We’re getting a direct curiosity and uptick. It’s additionally a product that historically or traditionally has been reserved for greater net-worth people. Considered one of our focuses is to extend our high-net-worth product choices. I feel this checks that field.
The second new product, which I consider is desk stakes for RIAs and desk stakes for HNW, is options. And we have now had a really good suite of BDCs and REITs. We’re additionally going to be doing way more on direct options, which speaks extra to HNW and UHNW than the extra liquid BDC-type options. That’s the second massive focus of mine.
After which third, we’re now utilizing SpiderRock, which was purchased by BlackRock. SpiderRock lets you hedge utilizing choices and concentrated inventory positions. Once more, that is talking extra to excessive web value, ultra-high web value. Low price-basis inventory, you don’t wish to promote it since you understand good points. SpiderRock places collars and choices round these positions so you may get some draw back safety as you assume by way of diversify your holding. As we go upmarket we’ll offer extra merchandise like this that basically converse to the advisory and RIA market.
WM: For the non-public fairness and personal credit score methods, are you utilizing a CAIS kind of platform to get entry to these?
ES: We do use CAIS. And Lincoln Wealth, which we’re within the strategy of integrating, it makes use of iCapital. Each these applied sciences are quickly to be accessible to all of our advisors.
WM: How will the RIA unit make the most of Osaic’s “benefit firms”?
ES: I feel this can be a game-changer. We personal these capabilities. These usually are not partnerships, these usually are not rented. First, we personal Premier Belief, which is domiciled within the Dakotas, which is a good website for trusts. Premier permits our advisors to go upmarket. They don’t handle cash, so the advisors proceed to handle the property. However Premier Belief offers administrative trustee companies. That’s an awesome high-net-worth advisor want within the market.
The second is the asset administration functionality, with Ladenburg Asset Administration. Phil Blancato and his crew have $7 billion in property now. They’re one of many fastest-growing asset managers on our platform. This offers a framework for advisors to make use of. What are our capital market assumptions? How would we place? What do our mannequin portfolios seem like? Mental capital that’s offered to those advisors that they’ll then use and leverage. All these items are a part of this ecosystem that we’ve created now to talk to excessive web value.
We even have an funding financial institution. Our funding bankers have distinctive insights into totally different industries and sectors. A few of our advisors have been capable of leverage that with both small enterprise house owners which might be purchasers to get insights, or simply to be taught extra about what’s happening in industries and sectors.