What Exactly Does “Hybrid” Mean in Financial Services?

Christopher Mercado, MBA, CFP®, CIMA®, AIFA®

Managing Partner at The Financial Services Network

In the financial services industry, we often hear statistics about poor financial literacy in America and how that’s attributed to a lack of understanding of basic terminology: recent GuideVine research showed that nearly half of survey respondents couldn’t adequately define the concepts of interest or bankruptcy.

The lesser-known secret is that financial advisors can be just as confused by the increasing complexity of institutional and regulatory lexicons—in fact, many that I meet struggle to continually educate themselves and keep up with all the jargon.

The term that seems to stump advisors the most these days is “hybrid,” and to be honest, I don’t blame them. Depending on its context, the label takes on new meaning, so I wanted to provide a brief explainer on the definitions of hybrid and how they’re used.

Hybrid: Demystifying the Model

Implying the best of both worlds, “hybrid” usually brings up the mental image of a Toyota Prius—or perhaps a designer dog like the Labradoodle. However, the concept has grown increasingly popular in financial services—and with that trendiness comes befuddlement.

When advisors are contemplating a transition from one firm to another, or breaking away entirely, “going hybrid” can bring up unnecessarily perplexing questions, detracting from the higher-level and more important conversation of what’s best for your business.

So let’s cut through the confusion and break down three common phrases:

1.      Hybrid business model

2.      Hybrid RIA

3.      Hybrid advisor

1. Hybrid Business Model

One of the most commonly used applications of the term “hybrid” is derived from the type of business model that an advisor can offer a client—both fee-based and commissionable.

A commission-based business model requires the Series 6 or 7 and the Series 63 securities licenses to serve as a Registered Representative. This allows an advisor to generate a commission and earn trail revenue through a broker-dealer transaction. An advisor can build and manage a successful business working with clients in only a brokerage or commissionable business model.

However, in most cases, a broker-dealer also provides advisors with flexibility and access to accounts where an advisor can charge a fee and engage the client as a fiduciary. As such, the advisor needs either the Series 65 or 66 Investment Advisor Representative licenses that is held with a Registered Investment Advisor (RIA) firm.

This RIA is typically owned by the broker-dealer. When an advisor is affiliated with a firm’s broker-dealer and the broker-dealer’s owned RIA, the advisor is accessing a hybrid business model offering both brokerage and fee-based account solutions. This is how most independent, wirehouse, and regional firms (such as Merrill Lynch, UBS, Edward Jones, Cetera, Kestra, and LPL Financial) are structured.

2. Hybrid RIA

Advisors can join or establish their own RIA if they only want to work with clients in a fiduciary capacity and generate revenues through a fee-based relationship. The RIA will then have custodial partners (like Charles Schwab, TD Ameritrade, Fidelity, and LPL Financial) in which the advisor can access accounts, managers and investment platforms to offer clients. Some RIAs can have multiple custodial partners for greater business model flexibility.

Here’s where it gets trickier: Advisors who manage a fee-based business model through a separate RIA affiliation may still have clients with commissions. Hence, many broker-dealers offer a hybrid broker-dealer affiliation with a separate, non-broker-dealer owned RIA. Still with me?

This is where the RIA industry and the traditional broker-dealer model intersect. It is not that the traditional broker-dealer model (in most cases) did not offer RIA or fee-based account services, it’s that advisors are looking for more autonomous and flexible solutions—either through a regional/national RIA or their own.

A hybrid RIA is simply an RIA with both a custodial and a broker/dealer partner to conduct fee-based and commissionable business respectively. Notably, the RIA in this instance is not the integrated or wholly-owned broker/dealer offering, but rather a separate business and support function.

3. Hybrid Advisor

To make things even more complicated, it is common for institutions to refer to advisors as hybrid advisors—i.e. those affiliated with an RIA and a broker/dealer through separate contractual arrangements.

Some in the industry may call a hybrid advisor someone who is “dual-registered,” but we find that the term only adds to the confusion due to the varying vernacular of regulatory bodies. We can bring this full circle by simply defining a hybrid advisor as an individual who is affiliated with a hybrid RIA and thereby accessing a hybrid business model.

A Quick Recap

Going hybrid doesn’t have to be as complicated as it might sound—especially when you’re familiar with these three terms:

·        Hybrid business model: a financial advisor’s ability to offer both fee-based and commissionable services to clients.

·        Hybrid RIA: an RIA that has a contractual relationship with a broker/dealer, as a separate and distinct entity, to offer commissionable products.

·        Hybrid advisor: an advisor affiliated with a hybrid RIA—who, by definition, also manages a hybrid business model offering both fee-based and commissionable services to clients.

What Hybrid Means to You

With all this noise and jargon in the financial services industry, it’s easy to get tripped-up on some basic fundamentals by reading too much into a name. The meaning of “hybrid” depends on its use, which is entirely based on what’s best for your business.

Whether you’re looking for full flexibility or just want the simplest-to-understand solution, our team at The Financial Services Network can help. We serve over 270 advisors nationwide, offering six core areas of focus, including compliance, operations, virtual administration, and technology consulting.

Want to learn more about going hybrid? Contact us to get started.

Investment advice offered through Strategic Wealth Advisors Group, LLC, a registered investment advisor. Strategic Wealth Advisors Group, LLC. and The Financial Services Network are separate entities from LPL Financial. For Financial Professional Use Only. Not For Public Distribution. Securities offered through LPL Financial, member FINRA/SIPC.

Three Organizations Recognized by Kolbe Corp for Impact With Strengths

Three organizations, including nonprofit and for profit enterprises, have just been announced as finalists for Kolbe Corp’s 2018 Conative Excellence Enterprise Award, for applying strengths theory to make lives better. The winner will be announced at Conation Nation Symposium, Oct. 25–26.

For profit and nonprofit enterprises share one major success criteria. They must understand people before making a significant impact. In 2018, three organizations have demonstrated superior understanding of people’s innate strengths, and have just been recognized as finalists for Kolbe Corp’s Conative Excellence Enterprise Award.

The three finalists are Bethany Christian Services, The Financial Services Network and LSW Architects — representing a diverse cross-section of organizations in nonprofit, financial and professional services. The winner will be announced, along with the individual Professional Award recipient, at the Conation Nation Symposium in Scottsdale, Arizona, Oct. 25–26.

“We’ve seen that successful organizations excel when they view their employees, customers and stakeholders in terms of strengths,” said David Kolbe, CEO of Kolbe Corp. “These finalists show that understanding human potential transcends industries and sectors. We’re incredibly proud to be associated with each of these finalists for our Conative Excellence Enterprise Award.”

Bethany Christian Services (Grand Rapids, Mich.)

Bethany Christian Services is a global nonprofit organization that brings families together and keeps families together. Strengthening families for the well-being of children is its top priority. The organization’s services include adoption, foster care and pregnancy counseling. It also provides counseling to families, assists refugees and immigrants resettling in the U.S. and partners with several international countries to help keep families together. “The work we do equips families to be the answer for children in need, as Christ intended,” says Bethany Christian Services.

The Financial Services Network (San Mateo, Calif.)

The Financial Services Network comprises a highly specialized group of business, investment and compliance professionals dedicated to serving the needs of an elite community of independent financial advisors. United by a common bond of excellence and sharing the desire to elevate their practices, its advisors partner with The Financial Services Network in the pursuit of growth, efficiency, acquisition strategies and seamless succession plans.

LSW Architects (Vancouver, Wash.)

LSW offers a full range of architectural, interior design and planning services and has been fortunate to partner with remarkable clients over its 60+ year history — resulting in a body of built work that continues to change the face of its Vancouver, Washington community and communities beyond. “Our people are the heart of our success,” says a spokesperson. “Our dedicated team implements their unique talents to positively impact our projects — all the while producing a supportive, lively work environment that naturally breeds a sense of collaboration and creativity.”

About Conation Nation Symposium

Conation Nation Symposium will take place October 25 and 26 at the DoubleTree Resort in Scottsdale, Ariz., and is the authoritative conference on conation — the part of the mind used in action and achievement. The event will feature a variety of presentations from leaders in coaching, human resources, and personal relationships; including Kathy Kolbe, Dan Sullivan and keynote speaker Brian Burkhardt.

For more information about Conation Nation Symposium, visit: http://kolbe.com/cns.

About Kolbe Corp

Since 1977, Kolbe Corp’s mission is to help people succeed by having the freedom to be themselves. More than one million people have completed Kolbe assessments to better understand their conative strengths — natural instincts that govern action and achievement. Thousands of organizations use Kolbe Corp’s assessments and consulting services to be more productive and to build effective and engaged teams.

Kolbe Corp’s flagship online assessment, the Kolbe A™ Index, is the most powerful personal strengths assessment available, with proven reliability and validity. The Kolbe A Index is available online at http://kolbe.com.

Read the article here

The Network recruits $245m team from Cetera, adds Wilshire research

Andrew Jones, CityWire USA  19 July 2018, 13:39

The Financial Services Network (The Network), an OSJ of LPL Financial, has taken on a new firm and partnered with Wilshire Funds Management.

Newly launched California RIA joins LPL Financial

Andrew Jones, CityWire USA  12 July 2018, 14:26

Happiness Wealth Management, led by ex-Merrill Lynch Advisor Mike Duffy, has joined LPL Financial’s broker-dealer and RIA platform.

Technology Blog – Volume 1, Issue 1: Clean Data is Happy Data

Clean Data is Happy Data

Nora Keenan, AVP Business Consulting
The Financial Services Network

Welcome to the inaugural edition of my technology blog.  I’ll use it as a forum for ideas, commentary and industry updates.

As you may know, a big part of my job is getting systems to share data so that your offices can be more efficient. Unfortunately, sometimes I get an office set up and the data doesn’t look like the advisor envisioned.

When this happens, often it is because the underlying source data is unstructured and cluttered.  Duplicate contact records, stale data and uncategorized clients are a few examples.  It’s easy to see how this messy data would be hard to work with.

Sometimes I see offices get discouraged at this point and postpone the work necessary to clean up their data.  It seems overwhelming and with everything else that’s required daily, it often doesn’t get done.

But fear not!  I will give you a plan that you can implement over time.  And once your data is clean, it will need nothing more than a quarterly sprucing.

Here are my Top 3 Tips for Data Cleanup

  • Remove Duplicates (Consolidate): When the same person is added twice (or more!) into your CRM, each version will collect their own appointments, notes and activities over time. Instead of deleting the extra copies, consolidate those contacts into one to maintain your activity, appointment and note history.  Redtail offers this functionality within the Bulk Actions menu.  Review this helpful article for detailed instructions: http://help.redtailtechnology.com/hc/en-us/articles/203977880-How-do-I-combine-records-

 

 

  • Periodic Maintenance: Now that your contact records are clean and segmented, keep them that way with some periodic maintenance.
    • Run the Contacts by Duplicate Names report in Redtail quarterly. This report shows you what contacts have the same first and last name.  Note that this report can list John Smith Sr and John Smith Jr as duplicate contacts.  Use your knowledge of the client base to do a logic check here. Redtail: Contacts by Duplicate Names Report
    • Update mail and email addresses in both Redtail and at the custodian consistently.
    • Run the Personal Profile Form from Redtail as part of your client meeting preparation. This form provides a summary of all contact information you have in the CRM for the client. Give them the opportunity to review and update the data periodically.  This form is available from the Common Tasks icon in the contact record in Redtail.

 

I hope I’ve renewed your enthusiasm for your CRM.  Stay tuned for more tips, tricks and videos in future issues of my monthly technology update.  Don’t hesitate to contact me at nkeenan@fsnweb.com with any questions or suggestions for future topics.

 

The company names and information mentioned herein was for educational purposes only. It was not a recommendation or solicitation to buy or sell that company nor an endorsement for their products/and or services.