The Rise of the Hybrid Advisor??

Hi everyone,

I came across these articles (although they are a bit dated) and I wanted to hear what everyone else had to say about them. Is this really the fastest growing sector within finance? I'm not sure what is so unique about these firms, can anyone shed a light on these? They are all related to "Hybrid Advisors"

I'm not too familiar with these types of firms and I'm hoping to see some responses from fellow WSO members that either have direct working experience with one of these firms, or someone that is familiar with the hybrid advisor model. To me, these companies seem like PWM firms with a little extra emphasis on the investment portion of financial planning, in relation to the estate planning, insurance, and tax portion. Almost like a hedge fund-financial planning firm. Nowadays I hear a lot about how it is increasing difficult to be a successful stock picker and that well performing managers in the hedge fund and asset management sector are becoming rarer and rarer. Many journalists and managers are saying that soon they will be overtaken by better performing - but less flashy - index funds.(http://www.newsmax.com/Finance/Zweig-active-stock-managers/2014/08/24/i…) I feel like firms such as these will be the next stop for a lot of these managers that will need to make a career change.

This seems like a promising career path for a young person interested in being a portfolio manager, but may be too late given the trends that could be forming in the next few years.

http://www.forbes.com/sites/halahtouryalai/2013/04/10/the-biggest-faste…

http://www.forbes.com/sites/juliecooling/2013/04/10/the-rise-of-the-hyb…

http://www.forbes.com/special-report/2013/top-50-wealth-managers.html

Any insight on these firms would be greatly appreciated!!

 

hybrid advisors are advisors who offer fee based investment management and but can also accept commissions.

Wirehouse brokers usually have their series 7 and 63. You have to have your series 7 in order to recieve commissions from selling a security to a client. (IPO, Reits, Bonds, Private Placements)

RIA firms are firms where you only hold your 65,allowing you to manage clients assets for an hourly fee, an Aum fee, or retainer fee but they cannot accept commissions from selling a client a particular advisor.

Hybrid advisors can do both. This is a growing trend because advisors can now leave the big wirehouses and form an RIA or join one but also can join an affliated broker dealer and do both commission and fee based business.

 

To be clear, if I'm working at say, a Merrill lynch branch office (I'm assuming this is what you mean by wirehouse) as a financial advisor, is that a commissioned based? I have the series 7 and 66 and my firm accepts fees only, is that just an individual policy? It seems to me that these firms also create custom portfolios with individual securities where as most financial advisor firms just sell mutual funds and charge a fee for AUM.

 

This is incorrect. I work at a wirehouse for one of the major firms (think Merrill, morgan, wells, etc) and I build custom portfolios all day long. Yes I sometimes use mutual funds but I also use ETFs, MLPs, REITS, commodities, as well as individual equity positions. We also use alternative investments such as managed futures, hedgefunds, private equity, etc. when it is appropiate I have access to basically everything and I use whichever investment best fits the needs of my clients.

 

I just feel like there is a such a wide gap between some financial advisers. Some are just "asset allocators" and some others seem to make very complex custom portfolios with individual equities and holdings for their clients. I interned at a financial planning firm that had 1,000s of clients but only 2 partners and everyone got put into a risk profile category and got an asset allocation - to me that seems boring and really lacks any ingenuity or critical thinking on the part of the adviser. I don't want to work like a place like that and just be an "asset allocator" with a few mutual funds and manage INVESTORS - I would like to be a true "investment advisor" and manage INVESTMENTS while still having some client interaction. I'm having a tough time differentiating which firms do what just by looking at them online. Could you provide some insight on how to differentiate these two groups before working at one?

by the way I've followed your blogs, thanks for all your insight on pwm!

 
Best Response

you're right, but all of those guys will retire/be pushed out of the business by 2020-2030. betterment & things like it will take their accounts and hourly financial planners will need to adapt so that they can either manage assets or lower their fees (probably making it an unsustainable business model and not pay as well). it's not really the rise of a hybrid advisor, the good advisors have been doing this stuff all along, it's just that they will be the last ones standing and so competition will get stiffer.

I don't see ROAs compressing all that much, but what I do see is more specialization. if you try to win the return game, you'll lose, everyone has monte carlo financial planning, everyone has great money manager offerings, but it'll be things like stock option plans, impact investing, private equity deals, specialty lending, structure of the team, and of course the personal relationship that will win bigger business going forward in my opinion. it's not enough to say "I can manage all of your assets and give you a financial plan," the people will say "yeah, but where's the beef?"

just my $0.02

my pleasure on writing about PWM, tons of misconceptions are out there, and it's mostly because of unscrupulous brokers and brokers that are not simply money managers, but lazy closet indexers/firm followers that are not "sharpening the saw" and simply coasting, and unfortunately this is to the detriment of their clientele.

 

A "broker" has only a suitability requirement @ min., to fulfill. A RIA HAS A fiduciary responsibility to fulfill to the client. Both give advice, both help build portfolios, both can manage accounts to a point.

 

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