Agents, beware of bad RIA platforms — A practical guide for choosing an outstanding RIA for clients and advisors alike

By Jason Wenk

Retirement Wealth Advisors Inc

Recently, an article on ProducersWEB warned agents about IMO-offered RIA services. The argument against IMO-offered RIAs was based on one example, using a performance comparison that wasn’t apples to apples. The article didn’t give agents a roadmap to follow as to how to properly choose an RIA partner.

The author also made a blanket statement that IMO-affiliated RIA platforms are somehow inferior to stand-alone RIAs. I disagree wholeheartedly. An RIA platform’s value should be measured based on value. I would argue if there is a correlation, it’s a positive one.

Top IMOs provide immense value to their advisors. Bad IMOs provide little to no value. Often, when a top IMO partners with an RIA, they will work together to deliver a turnkey, total business platform for their advisors (think marketing, products, coaching, compliance, software, etc.).

Before going any further, please know this piece isn’t meant to beat up the article mentioned. Rather, it’s to expand on it with a practical guide that will help advisors find a truly outstanding RIA partner. That author and I don’t agree on everything, but we both feel that agents are better equipped to serve their clients when licensed as an advisor. And we also feel that advisors need to embrace their fiduciary duty to find the best RIA platform for their clients.

To build the guide, I wanted to specifically help with two objectives:
    1. How to apply your fiduciary duty to ensure, when choosing an RIA partner, that you really are putting your clients’ interests first

    2. Stepping into your clients’ shoes and matching your RIA partners' offering with the clients’ ideal advisor wish list
If we can do these two things, we’ll not only have a rock-solid RIA partner and deliver exceptional value to our clients, but we’ll also put ourselves in a position to succeed immensely as complete financial advisors.

While cliché, it’s a classic win-win.
How to apply your fiduciary duty when choosing an RIA platform

When you pass your Series 65 license testing and become an investment advisor representative (IAR), you’ll have the opportunity to be a comprehensive advisor to your clients with a legal obligation to put their interests before your own. This obligation is called fiduciary duty.

Sadly, some IMOs that support agents becoming IARs also promote fiduciary duty like it’s just a marketing angle. Their training is designed to teach the advisor about “positioning” themselves as a fiduciary so that in reality they can just sell more annuities and life insurance.

That’s a flawed approach — and definitely not legal. Those who abuse fiduciary duty will eventually get caught, fined and possibly get their licenses taken away.

Being a fiduciary should be something we all strive to do whether we are IARs or life/health-licensed only. In practical terms, a fiduciary simply cares about their client's financial outcome more than their own. I believe that’s the only way we should do business.

If you agree with this, then you’ll want to take your fiduciary duty to the table when measuring up your potential RIA partners.

To accomplish this, we need to have a checklist to help us compare our RIA options. While the list I’ll share below is not the holy grail of fiduciary duty guides, it is a practical start that the agent/IAR world desperately needs.
  • How experienced is the management of the RIA firm?
  • How long has the RIA firm been in business?
  • Does the RIA firm have a clean compliance history?
  • How many options does the RIA firm allow clients and advisors to choose from?
  • Does the RIA firm have certified financial planners (CFPs) on staff to assist with comprehensive planning?
  • Does the RIA firm have chartered financial analysts (CFAs) to assist with portfolio construction and ongoing management?
  • Does the RIA firm have attorneys on staff to act as a chief compliance officer (CCO)?
  • Does the RIA firm strive to always have the lowest costs possible so clients get to keep the largest portion of their returns possible?
  • Does the RIA firm have a proven performance track record, including minimal drawdown during the recent financial crisis?
  • Does the RIA firm’s performance reflect their actual performance, or do they just switch available money managers every couple years to give the appearance they’ve done well when in reality they’ve done very poorly?
  • Does the RIA firm offer proactive reporting of client portfolios, including the integration of the client’s non-managed assets (like annuities or 401(k) assets)?
  • Does the RIA firm have proprietary, high-client-value services/software that truly cannot be found anywhere else?
This list should check out at a minimum if you really want to be a fiduciary for your clients. It’s OK to be demanding; our clients want the best and you should, too.

If you don’t know how to answer some of the questions, don’t worry. I’ll help with a few that are harder to know if your RIA partner checks out or not.
Performance is one item that clients will certainly experience from the list. Other items are more to prove you’ve done your due diligence.

In the comment section of the article, the author and I debated the merits of money manager returns. While it is important, it’s also important that the actual clients of the RIA have done well. Many just switch managers every couple years to give the impression of strong performance, but when you look up their Form ADV, you’ll see a graveyard of past managers the firm no longer promotes. That sign alone should be enough for any real fiduciary to seek a better platform.

Fees are also an area of debate for RIA firms. Some will try to tell you they charge premium pricing because they have a premium product. That’s not true, and another sign that real fiduciaries should seek a better RIA partner. Remember, a fiduciary has to put their clients’ needs before their own — that goes for the fees they charge just as much as anything else.

Fair fees for an RIA should allow the client to pay less than 2 percent and include all money manager fees (you should have access to at least half a dozen high-quality money managers, not just the RIA’s proprietary portfolios), trading costs, custody, statements (yeah, some RIAs will charge extra just to provide client statements), and a full 1 percent or more for you, as the client's personal financial advisor.

Step into your clients’ shoes to build their ideal advisor wish list (then, deliver it to them with a strong RIA partner).

Over the past few years, I’ve often used a simple analogy when describing how my practice was built. The analogy is this: If your clients crave a big, juicy bacon double cheeseburger, then serve them up the highest quality, best tasting cheeseburger you can find.

As advisors, we too often get focused on what we do, what we sell, and what we think the clients should do with the money they saved their whole lives for. It’s no wonder most advisors aren’t successful and most clients aren’t really happy.

If you want to be a successful advisor with happy clients, by all means, just do what’s best for them!

Sure, we could decide to be stubborn and say that if we can’t sell crappy products then we’re just weak advisors. Or, we can deliver something that’s really great for our clients and make the “selling” more or less a formality. I’ll take the second option!

So, how do we apply this philosophy to our RIA business? Simple: We just step into our clients' shoes and see exactly what they’d order.
In the case of my firm, we poll our clients often to better understand what they really want. It works; we did over $70 million in total new business with less than $100 spent on marketing and with only two advisors and one support person. I’ll share what my clients think, though you can always (and should) poll yours as well.

Client wish list:
    1. Stay in touch with me more often.
    2. Keep my money safe.
    3. Keep my fees fair.
    4. Make my statements simple and easy to understand.
Those are the actual top four answers, in that order, we found when we asked more than 10,000 people what they look for in a financial advisor. The average portfolio size of those who completed the survey was just a shade under $900,000. For those who wondered where “performance” came in, it was number seven.

Interestingly, my polls are pretty consistent with other polls done by major national newspapers and websites. Universally, when clients are asked why they change advisors, it’s because the advisor didn’t stay in touch or make the client feel important.

Let’s translate this into our RIA partner, so we can see if they are helping you and your clients with their advisor wish list.

1. Stay in touch with me more often.

I send my clients weekly emails that show them in very simple terms how their portfolio is doing. They always know what they have and how much their total portfolio either went up or down. The reports include all their managed assets as well as their annuities, and even their 401(k) or self-managed brokerage accounts. Clients love this, and it counts for 52 touches to make sure they feel loved and important.

We send text message alerts congratulating clients each time their portfolio reaches a new all-time high. This is a simple, automated task, and always reminds clients of the wise choice they made in working with our firm. We also write short and simple blog posts that are automatically emailed to all clients 3-4 times per month. All in, we provide hundreds of automated “touches” to let our clients know what they have, how they’re doing, and that we’re watching all of this closely for them. What is your RIA partner doing to deliver value on the client’s number one wish list item?
2. Keep my money safe.

Since many ProducersWEB readers are licensed agents, this should come as no surprise to you (and you're probably already doing this).

As it relates to an RIA firm, this is where you should look at the portfolio options and make sure your money managers deliver. They should be consistent, manage market fluctuations well, and be highly diversified.

For diversification, you should have multiple world-class money managers that all use at least a slightly different style to achieve their results. If you only have two great managers who do the exact same thing, it’s not good enough for the wish list.

Another way to define safe is by the custodian your RIA uses for client accounts. Here’s a really simple litmus test to determine if you have a good one: If you have to explain who your custodian is because the client has never heard of it, then you need a different RIA firm. Psychologically, clients just don’t feel as comfortable when they don’t know where their money is. Sure, you can always “sell” them on why your no-name custodian is great, but why bother? If they want a solid custodian, then just make sure you deliver them one.

If possible, you should also use technology to communicate a message of safety to your clients. At my firm, we licensed a software that automatically monitors every single client account and lets us know how much they’ve dropped from their all-time high. It can even allow us to set an alert system so that, if we know a client would never want to drop more than 10 percent from their highest-ever amount, we get notified if they reach 7.5 percent.

What is your RIA doing to help you deliver safe portfolios to your clients?

3. Keep my fees fair.

We don’t need to beat a dead horse here, but clients do not want to pay high fees. Yes, if you’re a good salesperson you can do it, but it’s not in your clients’ best interest.

Clients don’t necessarily want “cheap” money management — they just don’t want to overpay. If you do charge a high fee (think anything over 2 percent), then just know your clients will have very high expectations. If you don’t deliver, then you’ll lose clients. No retention = no real value in a fee-based business. So, just do the right thing and try to provide great service at a fair price. You and your clients will benefit from this equally.

What’s your RIA partner doing to make sure pricing is fair and in your clients’ best interest?

4. Make my statements simple and easy to understand.

I’ve already shared how we provide clients weekly updates and even text message alerts. In addition, you absolutely must have simple and easy-to-understand statements.

Ideally, the statement should have your name and firm logo on it (not your RIA firm if you’re an IAR; your clients bought you, not them). Clients should be able to find out exactly how much they have, how they’re doing, and how much they’re paying you.


Is your RIA firm delivering simple, easy-to-understand statements with your branding on them?

Friends, that’s it — your simple yet comprehensive guide for choosing a rock-solid RIA partner.

If you think this guide is missing something, just drop some comments below. If there’s adequate demand, I’ll even have this designed into a fillable PDF with check boxes and text areas. That way, when the SEC comes knocking at your door wanting to know how you represent your clients’ best interest, you can confidently pull the guide out and show them.