Ask Brad: How to Explain the RIA Model to Clients

This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

We use a lot of jargon in our profession. It is not just investment jargon, but mumble jumble to describe how advisor practices are structured: broker/dealer, registered investment advisor, registered representative, investment advisor representative, custodian, hybrid, etc.

Let’s not forget the acronyms: RIA, BD, OSJ, SEC, and FINRA, to name a few.

Your clients and prospects likely understand little to none of this.

I am often asked by advisors considering the RIA model how they should explain to their clients why they are transitioning their practice to an RIA. (The same lesson applies to existing RIAs, explaining to prospective clients what an RIA is and why it is beneficial.)

While there are significant advantages for advisors to make the transition, which I opine on frequently in this column, how does it benefit the client? And how can it be explained without relying on confusing jargon that won’t be understood?

I recently spoke to an advisor nearing the two-year anniversary of his RIA. He had been with a traditional W2 broker/dealer model. I asked him how he explained the transition to his clients. He gave one of the better responses I’ve heard.