The Independent RIA Channel – A Completely Different Animal
December 23, 2021 | Richard Hillson | Family Wealth Report
The sub-$500 million assets under management independent Registered Investment Advisor (RIA) market is one of the most untapped sources of capital in the alternatives space, if not the single most untapped. Meanwhile, the independent broker dealer community is thriving in the alts space. I am asked weekly why that is.
Firstly, let’s look at why the IBD channel is the most targeted by alternative product sponsors.
BD reps can typically earn 3 to 5 per cent commission selling alts products. This makes it well worth reps learning the nuances of the product and then educating their clients. If a rep can recommend a Delaware Statutory Trust for a 1031 transaction, they are essentially earning a commission on a whole pot of money which they would never have had access to. Additionally, the BD firm can usually request a 1 per cent marketing and due diligence allowance which covers their costs and can often turn into a nice profit center.
BD reps are also not always a fiduciary and therefore the transactional nature of their business is very suited to the alts space with high commissions, often paid by the sponsor. Some BD reps make their living exclusively in the alts space, not advising on any of the “core” funds.
Now let’s analyze why the RIA channel is oft neglected and why advisors are less inclined to allocate to the alts market. I heard some research at a recent conference suggesting that 2/3 advisors do not allocate to alts!
Advisors can charge the same wrap fee, whether the allocation is to Amazon stock or to an alternative product.
This provides very little financial incentive to allocate to something deemed to be more complex; requiring more client handholding; and with a perceived higher regulatory risk. This makes it very difficult for an advisor to get out of their comfort zone.
