Ask Brad: The Super-OSJ Model is Doomed

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.

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The economics behind the “super OSJ” brokerage model are unsustainable. Those firms are destined to transition to RIAs.

To understand why this is the case, imagine you operate a hotel.

John, a business traveler, comes to town frequently, booking a room once a month. He’s a great customer: he visits often and pays the full room rate.

John eventually starts booking two rooms for each visit, as he now brings a co-worker. That’s two rooms every month at full room rate. We love John!

Business keeps expanding for John; he now brings four co-workers with him each month, each needing their own room. Now up to five rooms total, John asks for a discount on the room rate every month. Knowing he’s a valuable customer, you oblige and offer him a 10% discount. Everyone is happy.