IBD vs. RIA: A Special Industry Update on Independence

Speaker A: Welcome to the latest episode of our podcast series for financial advisors. Today's episode is IBD vs RIA, a special industry update on independence. It's a conversation with Josh Tomalak, our Vice president of Independent Advisor Services. I'm, um, Louis diamond and this is the diamond podcast for financial advisors.

Speaker B: At Diamond Consultants, we help elite advisors identify the right environment for their businesses to thrive, whether that's at a warehouse, boutique or independent firm. With nearly three decades of experience, we've guided thousands of advisors and represented more than a quarter of a trillion dollars in assets transitioned. And each year one in four advisors managing a billion dollars or more who change firms are our clients. Our process is education driven and based on building relationships, starting as your strategic partner. Well, before you're even thinking of a move to schedule a confidential conversation, call us at 908-879-1002. Wondering why advisors change firms and where they're headed to? Are transition deals going up or down? Those very questions and more inspired us to create our annual Advisor Transition Report. It's the award winning data driven resource designed for advisors that connects the dots between the motivations around movement and the firm's appetite for top talent. Arm yourself with the knowledge you need to make smart decisions. Download your copy at ah.diamond-consultants.com transitionreport.

Speaker A: For a long time, going independent was viewed as the destination. Today, it's often the beginning of a different conversation. As the independent space has matured, advisors have more choices than ever before. Broker dealers have expanded their capabilities. The RIA ecosystem has become increasingly sophisticated, capital is more readily available and support models now exist that would have been difficult to imagine a decade ago. The result is that many advisors who are already independent are taking a fresh look at, uh, whether their current affiliation still aligns with what they're trying to build. My guest is Josh Tomalak, Vice President of Independent Advisor Services here at Diamond Consultants and our resident expert on independence. Josh spends his days helping advisors evaluate independence in all its forms from, um, independent broker dealers, the fully independent RIAs, and everything in between. And his knowledge is critical because the distinction between these models is often blurred. Many broker dealers now offer pathways to greater autonomy, while supported independence has made RIA ownership more accessible than ever before. So the question is no longer simply do I want to go independent? The question is what kind of independence makes the most sense for client business and goals. Josh shares what he's seeing across the landscape, the misconceptions that uh, continue to shape advisor thinking and the factors that matter most when evaluating the Next chapter of an independent business. There's a lot to discuss, so let's get to it. Josh, thanks for joining me today.

Speaker C: Thanks for having me, Louis. It's a real privilege to have come. This is a full circle moment for me, going from being a student of your podcast to working, uh, alongside you to being a guest. So I appreciate you having me.

Speaker A: Amazing. I'm excited for this one too, because you have a fresh and in the weeds perspective that a lot of our guests simply don't have. So why don't you start off? You spend your time helping advisors evaluate independence every day. So working with advisors who are already independent for the most part. And to me it feels like the independent space has really evolved dramatically over the last decade. I mean, this podcast is really the epicenter of that to prove that out. But give us a little background on your past, your past roles in the space, and then we can get into what you're seeing right now.

Speaker C: Yeah, be happy to. So I took a very non traditional path into wealth management. I spent a decade as a deep Sea Navy diver. And upon completing my service there, I ended up working for TD Ameritrade. And in my role there, I spent about six years doing nothing but helping, uh, financial advisors explore the RIA space. Whether that was to join or partner with an ria, sell to an ria, or in most cases launch their own ria. And uh, one of the things that I ultimately came to terms with is it's just not the right model for everybody. While I'm a huge advocate for it, we would often lose business to the major broker dealers of the world. And at the time I really didn't understand why. In the last six years at Diamond Consultants has been a very, uh, interesting purview into what a lot of the broker dealers have done and are doing to make themselves more RIA ish and be very compelling to the right advisor.

Speaker A: Perfect. Framing your background is, is incredibly germane to the folks you work with. So let's start off with the softball here. What are you seeing right now?

Speaker C: It's not so different than the rest of the industry. The wirehouses, the regional firms, things of that nature that if you took 10 firms, they're all likely to go different directions. Even if they were identical practices, that could be a third would go from an independent broker dealer to another independent broker dealer. Certainly the supported RIA space is growing every day and has created a lot of very fun and unique solutions for advisors, very customized and curated. And then I think there's still a lot of really great sophisticated teams and individual contributors that are making the decision to go hyper entrepreneurial and launch their own individual ria. So the movement's really all over the board.

Speaker A: From my perspective, it does feel like it's no longer like independence is like an alternative option or it's like on the fringes. It's very front and center, whether for breakaways, which is a big topic on our podcast. But in general, the infrastructure has become much, much more sophisticated today than ever before. Like advisors have way more tools in their toolbox to serve clients, whether in the private markets or through technology. And it's no longer that if an advisor is independent, they're in the minor leagues where they don't have the same ability to serve clients like they did if they're at a big bank or private bank or a wirehouse. Do you agree?

Speaker C: I absolutely agree. And I'm um, reminded of a question I got one time from a, uh, great team that I worked with in New York. They asked me, are there really more options than ever before? Because all we see is one firm selling to another. And I think that's a really great point. There's far less broker dealers on the street than there were even five years ago. But for every commonwealth, for example, that sells to an lpl, up pops three or four really cool private equity backed sophisticated RIA platform firms that are built to service their own unique advisory base.

Speaker A: I think that's right. Sitting on um, the sidelines, sitting on top of everything going on in the industry. I feel like capital is always an interesting topic forever. If an advisor wanted to move m within the independent world or break away from a big firm to go independent, the only way to get capital was to go to an independent broker dealer. So we still see that. But I feel like today between all these minority acquisition opportunities, we're seeing firms acquire practices at time of transition, which is somewhat new. There's debt solutions recruiting deals are way up for firms that are paying forgivable loans. RIAs now would in some cases will pay a forgivable note. Like what are you seeing there as far as the availability of capital and just deals in general?

Speaker C: It's a great question and um, I didn't want to take the low hanging fruit, but capital's been a, a huge innovation I guess in the last five years. I'd say just to give you like rough quotes, please don't hold me to it, but traditional transition broker dealer deals were five years ago, 40 to 60% of trailing 12 revenue today are somewhere between 90 and 120% sometimes north of ah, that for the right team, that's really meaningful money for the team that is thinking about foregoing a, uh, wirehouse deal, for example. I'd also say a lot of these firms are getting hyper creative in how they solve for capital. The minority investment piece that you mentioned is very interesting. We're seeing a lot of privatized forgivable notes in the RIA space where third party or private lenders are basically lending the money and the RIA is making the payments on that forgivable note as long as the advisor is affiliated with them. So there's been a recognition among the RIA space to get away from the oh, they just took a checked type of mantra and to say, look, I understand there are capital needs, these people are taking a risk, we need to solve for that. So seen a lot of that in the marketplace.

Speaker A: Very interesting. I think another thing financially, and then we'll keep the train moving. I know I've seen and maybe you can weigh in if you've seen the same is the cost to an advisor or business owner to join an independent BD or to join an RIA has come way down, probably in part because of Schwab going to zero on trading. That's been a catalyst. But it feels like we used to say independent BDs were expensive relative to the RIA world. And in some cases they certainly could be. And if you're at scale, maybe you can pick up a point or two being in the RIA world versus a bd. But when you have some of these bds that have a basis point admin fee or no admin fee at a certain size and the payouts I feel like are similar, maybe have gone up a little bit, but it's more so like the administrator fees, the platform fees, the program fees, anyone who's not in that world, it's like, what are you talking about? But, uh, basically the way that these broker dealers make money, it seems like there's been a pretty big differential in the exchange of value where advisors now get more services, better technology, get more money to join them and get it at a lower cost. Do you agree?

Speaker C: I absolutely agree. I think that maybe that's one of the larger changes that we've seen and it's probably one of the benefits from a lot of the industry consolidation on that independent broker dealer side. The economies of scale of these folks have allowed them to increase their tech spend, increase their service capacities, all while offering it to the advisors at a cheaper price. And when I was at TD Ameritrade, one of the biggest pitches was the idea of a 100% payout and you control the fixed expenses, right? Your technology compliance, et cetera. But what's changed is that broker dealers are pretty darn comparable on the expenses. All of those admin fees and things you mentioned will still exist, but they're on a much smaller scale. And I think the question a lot of advisors are asking is, am I getting congruent value from my broker dealer for what I pay for? And while that answer might have been no a couple years ago, today the answer is more often yes.

Speaker A: Yeah, I would agree. A lot of times we work with advisors who are weighing starting an RIA or affiliating with an RIA or going to a bd and they see how big the deals are in the independent BD world. And the payouts are really high and the uh, fees are relatively low. And it honestly, it is a hard decision or calculus to make. Like how does it make sense for me to turn down this extremely lucrative deal when my ongoing economics are going to be somewhat similar in the BD world versus in the RIA space? I think it's just an interesting dynamic and we'll get more into that distinction. One of the stars of the show right here is we've seen a ton of advisor movement across the industry. Our annual advisor transition report said that in 2025, over 11,000 experienced advisors changed firms, which is a large number. A lot of those numbers are within the independent world. So advisors who are 1099 through a BD or through an RIA, transitioning to another platform or organization or starting an RIA. So why do you think we're seeing so many advisors reconsider their current firm or their platform or their broker dealer today than in years past?

Speaker C: It's a jarring number, right? 11,000 is definitely a significant amount of advisor movements to me. Uh, it comes down to a few things, but I will say that it's almost always a conglomeration of pushes and pulls. Pushes being inherent frustrations with your, the status quo, polls being the new, um, sexy, shiny things that you see in the marketplace that could be really impactful for your business. Right. To me, it typically comes down to one of three things, at least on the push front that drives advisors to movement. Service being number one, technology being number two, and economics being number three. And if we were just going to unpack those, I think service being can you call somebody that knows your business, that knows your name? Are you getting the correct answers? Are you being pushed through a phone tree is. And even if you're not doing it, does it, is it taking up a meaningful amount of time of your staff's free time? On the technology front, there's very significant tech spends happening in the industry right now. I think Raymond James and LPL reported, for example, they spent 500 million in 2025 on a tech spend. So advisors are going to the places that are making their life easier. People are looking for a mechanism to really scale their business without having to add staff and a lot of expenses to the bottom line. And technology is just the fastest, most efficient way to do that most times. And then economics, uh, certainly a lot of advisors and teams have built phenomenal businesses and they've made a great living without really stressing out about the economics. And they, uh, eventually get to a point in their business where what they were giving up as a million dollar producer is far different than what they're giving up as a $4 million producer. And back to the congruent value, it perhaps stops to make as much sense.

Speaker A: Well said. Yeah, I always say, like when the cost to value ratio is out of whack, that's when advisors sit up and take notice and like not to name names of firms, but there definitely are firms that are more expensive. And even if you look at how much a wirehouse or um, Ed Jones advisor paid their firm, it's like what got me here is not necessarily what's going to get me there. And while, uh, the name on the business card, the resources were incredibly impactful. And I'm so grateful for what my firm, my broker, dealer, did, did for me when I was just starting or when I was smaller. Now the business is bigger, I rely upon different resources or I don't need the firm as much. So I'd rather plow the cost savings either into income for myself or invest it in areas that are most humane to my business. And it's usually when that kind of light bulb moment goes off, that's one of the major pushes that cause advisors to evaluate other options. So I agree with you. Those are the major push factors. But then what are the pull factors? What are the major advancements or changes across the independent space that's causing advisors to say, hey, okay, I might have some frustrations, but at the same time I also need to find something that's more than marginally better than the firm I'm at. Otherwise why am I going to go through the hassle, take the risk, et cetera. So what are some of the, uh, Pull factors that advisors are latching onto today.

Speaker C: Sure. And I might say with one final push factor, there's a straw that breaks the proverbial camel's back. When you've been told for however many years that this change or that change is coming down the pipeline and it never happens, it translates well into the pull factors is do they do what they say they're going to do? The talking points really for the pull factors are exactly the same. So the counterpoint to service is perhaps having a direct relationship with the chief compliance officer at a firm or having a dedicated service representative that knows their stuff inside and out and can get you the answer even if they don't know it off the top of their head. Having the technology to rebalance a household in two clicks instead of two hours. In economics, I think it's really a transparency of economics. We've both worked with some really significant firms that have looked at their P&Ls and said where the heck is the money going? And we've looked at the same P and LS and said I have no idea because it's so convoluted. People are happy to pay for good service, good technology, good products, but they just want to know where the money's coming from. So I think it's a yin and yang. The same things that they're. The push are often the pull.

Speaker A: Definitely. I'll give you a couple other. From my perspective, I'll say like first specific to the independent BD world and then we'll dive into the ria. I think it's a little bit different but like I think some others will say like innovations or changes that are causing advisors to really like perk up and listen and really make the case to themselves that life will be better at this new organization than the status quo or staying put. I m mean we've seen major advancements in transition support. Whether it's being able to do a, uh, transition without a shred of paper being able to. I mean we've seen some independent advisors move their entire book within two weeks, which is. Which never would have happened before. So the firms that I'd say are playing offense, the larger firms that are winning, they have insane headcount around transitions and are always investing in technology, whether now on the AI front or in general. And we've seen transitions, they're never easy. So that's not a comment to say it's easy, but a lot of the friction, a lot of the manual work has been taken away, which is massive. You definitely mentioned the significant Technology spend. I mean just the innovations going on across the industry. There's definitely some firms that are laggards on technology and others that are light years ahead, whether because their tech is more integrated or they've built out their platform to be more, we'll say like modular to plug in different third party softwares where an advisor can really customize and create their own tech stack. I think there's been some changes on compliance. It used to be if you're an independent bd, you had to be the OSJ yourself or you had to roll up under an osj. But now most bds offer home office supervision. So a big kind of friction or pain point is taken away and then I'll give you a bridge to talk about what we're seeing on the RIA side. But we've also seen, I would say like a real blurring of the lines between what you would traditionally think of as an independent broker dealer versus what was an ria. So whether it's like an internal pathway where it's like start off on our independent BD platform, get the big deal, get the support, but then you could, you can ditch that and just use this as a custodian or you can sell the business to us when you want to retire, you can convert to W2. So in that vein, transitioning internally to an RIA, give me the same points, like what are the major advancements or changes you're seeing on the RIA side today?

Speaker C: I love that you said that because it's been one of the most interesting changes to watch independent broker dealers becoming more like RIAs. And to your point, being more flexible, having more optionality, a more curated experience in some cases and uh, in many cases becoming closer to independent broker dealers with some of these massive shops that we've seen be created over the last five years that now have hundreds if not thousands of advisors. To your question on the internal RIA slide, as we sometimes call it, this really didn't exist many places a few years ago. And uh, I think it's been created as both originally a retention tool in many places for the advisors that were with a major uh, independent broker dealer. And they ultimately wanted to have their own ADV and their own ria. And uh, the firm didn't want to lose all the assets to an independent custodian so they gave them the green light to. And it's ultimately became a sales tool many cases. Right. Just to use a couple of examples across the industry, I mean Raymond James has Raymond James Custody Services, which has attracted A lot of really sophisticated teams. I know Wells Fargo Finance done something similar and even the counterparts over at Cetera and OIC are trying to do the same thing. So it's a recognition in my view that we want to keep the best talent possible. And if these folks are ultimately going to go RIA anyway, it's less about the money and more about the flexibility and control that it offers them. So what can we do to keep those folks on board? And rightfully so. A lot of senior management of these firms have said let's uh, not lose these teams. It's going to be a lower margin business for us, but at the rate that they're growing, it's going to pay off in the long run.

Speaker A: Well said. Rias are now more mainstream and some of these RIAs like they're either resembling independent BDS or I would even go so so far to say the valuations that are even publicly available on some RIAs is definitely having people take notice. I mean Serity Partners recently raised capital at a over $8 billion reported valuation. Crescent was well over a billion. Firms like Mariner Creative Planning, Mercer Wealth Enhancement Group, and there's many that I'm missing are all worth a couple billion dollars or more and growing. Do you think that's had a, uh, impact on the legitimacy or the staying power of the RIA model?

Speaker C: Oh, absolutely. There is no doubt about it. I mean those groups that you mentioned and many more are winning some of the biggest teams on the street. I mean if you pull up a run of the mill Advisor Hub article, for example, you'll see as many of those RIAs win significant businesses as you will their broker dealer counterparts. Partially in my opinion due to the massive valuations these firms are fetching. And it's much more of a um, partnership in the sense that joining a Crescent or a Wealth Enhancement group, as you mentioned, you're a part of a boutique group of maybe a couple of hundred very sophisticated high producing advisors all playing under the same banner, all rowing in the same direction and that creates substantial growth.

Speaker A: Exactly right. I think like two other things to me that are, that's driving the legitimacy or the growth of the RIA segment. There's so many different outsourcing solutions that have popped up, whether it's more of a, we'll say like a bundled or a package outsourcing solution through terms like dynasty and sanctuary. Like LPL has a, uh, has done a ton with having a kind of shared services outsourcing model. So you have those, but you also have, I mean probably 10 different firms I could think of that can be an outsourced chief compliance officer. You have tons of marketing agencies that specialize in helping RIAs. You have all these fintechs popping up to support the RIA space. Really, it's like anything and everything can be outsourced now. And even the big Wall street banks like ubs, Merrill, et cetera, they're attempting to sell and distribute product into the RIA space. Venture funds, private equity funds, anyone you talk to is trying to get a piece of the R A space, which means there's more product and platform availability than ever before. And I think that's massive because one, it's a catalyst for teams. You say, like, I love everything about the RIA world. I just don't want to do it on my own or I don't know where to start. But also it means that they can look their clients in the eye and say, hey, uh, not only do I have the same stuff that I had for you, uh, at XYZ firm, I can actually do more for you. And even if you look at like what the custodians are doing on the lending side now, Schwab owning a bank is massive. And being able to facilitate mortgages, securities backed loans, things that didn't really exist in the past, I think it's a very exciting time for advisors either that are independent or considering the independent space. You have all these choices and it's really like, choose your own adventure. Give me your top five things you want. I'm sure it exists and we can find it and make it happen. And I don't think we'd have the same confidence in that statement five, seven, ten years ago.

Speaker C: I couldn't agree more. That's such a huge development is the marketplace of third party vendors in any kind of capitalism environment, right. There's problems that people encounter and there's really smart people that are trying to make a lot of money. They go to market to solve them. And we've seen a ton of that over the last few years.

Speaker A: Exactly. Right? Yeah. It's like also if an advisor looks around and says, hey, this is what I want and it doesn't exist, oftentimes that's a light bulb moment. Um, to be like, okay, I'll go build it, I'll do it on my own. Whether it was Steward Partners when they launched a number of years ago, or Hightower Dynasty, et cetera, they were all started by people that said, hey, I see a big gap in the ecosystem. Let's create a business and Raise capital to go solve it and then deliver this service to other like minded advisors or business owners. So it's honestly it's a treat to be able to watch all this happen in real time. We probably should have like laid the groundwork with this next question, but I think it's an important one. Give me like what's the difference between a, uh, independent broker dealer and an ria? Like, like really basic foundational, like it sounds like the lines are blurred. There's probably a lot of similarities. Advisors are successful in both. It's not like one's better than the other. How would you explain the differences if a client of ours asked what's the difference between a independent um, broker dealer and IBD versus an ria?

Speaker C: Getting to the core of it. Again, the lines are blurred but. And I'll stay very high level on the kind of strategic differences. But I like to use this example. I drive a Toyota Tundra. Really like the truck gets me from A to B. Now if I were getting to a point where I wanted a new vehicle, if I were to go get another Toyota Tundra because I really like a lot of aspects of it, but I want the one with the, the bigger screen and the bigger tires and the power seats and I've rolled on windows because I have a fear of grounding. But if I want a lot of the bells and whistles, but I want to keep the foundation, that's what I align to a independent broker dealer. To independent broker dealer. Um, you like the foundation of everything all under one roof. You like a lot of the resources, but you have some meaningful frustrations and you want to see if another provider in the market can solve for those right. Or you can upgrade. If I instead Louis decided that I wanted a sports car or a Jeep Wrangler or something, I would be looking at a different category altogether. That's how I articulate the A platform space. This is. They provide the same services and support in many cases that an independent broker dealer does. Think marketing and a tech stack and regulatory oversight and a fellowship in a community. But they're built on an RIA C registered chassis. They're typically far more customized and so you can shop uh, the street to get a lot more of the things that you like. Though you are walking away from maybe some of the things that you liked in the independent broker dealer model. So I guess that's the highest level. I might explain it just a little bit more minutia in any broker dealer is going to be a finra, registered FINRA member Broker dealer. So they're subject to the FINRA rules, uh, which basically means it's the compliance interpretation of those rules that they have to follow. So LPL's rules may be slightly different than Cetera's, than Ameriprise's, because it's based on their interpretations of the rules. In the RIA space, everybody really operates on the fiduciary standard. So it's just a different lens that from a compliance standpoint, business is looked at. And a lot of people would make the argument that it's just easier to get things done when you're looking at something from that lens. I might have gone too compliance nerd on you there, but I'd be curious what you think some of the major differences are.

Speaker A: Yeah, I think that's right. And like, I mean, it sounds like if you're in the RA world in some capacity that you, as the advisor or business owner, are going to have a little bit more control and autonomy and flexibility. 1. Do you think that's true? And like, what are the reasons why that is? Is it platform? Is it strictly just compliance is easier? What are the different ways that an RIA would have more or less flexibility than someone who's with an independent bd?

Speaker C: Yeah, I think it's overwhelmingly true, but it certainly depends on your business. Within most RIA platforms, you're going to be one of a couple dozen, maybe a couple hundred, where you're going to have people within that firm that really know your business. So the experience in getting things done is much less about can I do this or can I not do this? And it's Louis, I understand you asked for this. We're going to run into these issues, but let's figure out how to get to yes. Right. So it's far more curated by people that are not operating on black and white rules and can actually figure out how to get the yes for your business. The other thing I would say is that most significant RIA platforms have multiple custodial options. So many times you'll see as few as two or as many as five. So if an advisor or a team is trying to bring on a new piece of business or do something creative, that might be something they can use a different custodial relationship to accomplish. It might be something that Goldman Sachs does really well but is in its infancy at Fidelity, or it might be international business that's approved on Pershing's platform, but not Schwab's platform. So the RIA partner that you're with can really look at Those custodians agnostically and say, what's the best home for this business? What's the best way to get this done for Lewis? Right. There's a couple examples of where I see the flexibility in practice.

Speaker A: Yeah, I think one more too would be the concept of being able to shop the street. I've heard it described as, as becoming a buy side advocate for your clients versus being a professional seller. So, meaning if I'm affiliated with an RIA or I'm operating my own ria, there's no selling away like there is at a wirehouse or at certain bds. So if I have a, uh, client who's trying to get a $10 million loan for a new building that they're, that they're breaking ground on, if I'm at UBS Merrill, Morgan Stanley, captive to a bd, I can go to my firm and say, hey, like this $10 million loan, here it is. What are the terms? What are the rates? Will you take on this business? And the firm will say, yes, no, yes, here are the terms, here's the caveats, et cetera. Uh, but it's a very closed market process. An advisor has to live and die by what their firm says versus in the RIA world, it's okay, I have relationships with nine different banks and I can go to these different banks and private credit funds and whoever and really create either an auction process for my client or really just help them in a fully agnostic, open way. And we see the same thing when it comes to alternative investments. Like no one at, uh, a wirehouse, let's say, is complaining that they don't have enough alts that they can offer. Clients like, those firms have done an amazing job with really boiling the ocean and having tons and tons of options for private investments, hedge funds, et cetera. But if you're in the RIA world, you can take it to the next level and say, hey, this like $3 million startup company that my friend is starting, I'm going to help him raise capital. Or my client wants to get a syndicate of investors together to have a direct investment into a qualified opportunity zone fund that they're starting. Let's do it when we can advise on it. So it's, it really expands what an advisor is able to do on behalf of clients. Like, to me, that's the most interesting or exciting part of the RIA model. You can get some of that within the BD world. But when, to me, when an advisor's business becomes more sophisticated as far as what their end clients needs are, it tends to translate better to the RIA world than the BD world. Not to say there aren't ultra high net worth focused advisors at bds. But because of that additional flexibility, autonomy, customization, et cetera, that speaks more ria. So again, absolutely not down at all on the independent bds because I think there's a massive home for them. Josh, let me turn it back to you. I'm um, rambling now. Give me the pitch for an independent bd. What are the things that are misperceptions that people have? What are the advantages that an independent broker dealer like an LPL or a ray J or a cetera have over RIAs or over other models in general?

Speaker C: Absolutely. And I'd say I've learned more over the last six years from some of your ramblings than most people learn in an MBA course. So keep doing what you're doing. But it's funny being in this position now, having spent so much time sort of selling against the IBD model within TD Ameritrade. But what I've learned is there's a good home for everybody. And um, a lot of times the advisors that they're entrepreneurial enough where they like having their name on the door, but they're not so entrepreneurial where they want to build everything out themselves. That's where the independent broker dealers absolutely kill it. Their economics have gotten to a point where they're really competitive. They offer transition capital that isn't even going to be comparable in the RIA space unless you're selling a minority share of your business. And uh, you m mentioned like LPL or we could really list all of the major ones. There's not a department that they don't have. Right. It could be uh, as nuanced as finding 403B payroll slots or it could be as mainstream as fixed income or setting up events. There are all kinds of really neat departments that these all under one roof independent broker dealers have invested in. And a lot of times they make an effort to make you very much aware of all of the, all of the support because most people don't use it. Right. So I would say for the advisors that are looking to get their improved Toyota Tundra, then you uh, can get probably 70 or 80% of what you want within the independent broker dealer world. Right. And you can also keep 20 or 30% of the stuff, maybe more that you really liked at your previous firm. Uh, so I think that's where it really shines. It's, I sometimes call it A an incremental change rather than a transformational change. But for many advisors, incremental is really good enough if you get to keep the familiarity of how you've been doing business for the last 20 some years, but you're able to get net improvement on the things that were really bothering you.

Speaker A: Well said. Something that I've seen that's been. I guess this could be either a pro or con depending upon the advisor. But with some broker dealers letting an advisor co brand with them or really having like a real like consumer facing brand, whether it's I'm a franchise owner with Ameriprise or I'm independent through Raymond James or running my own practice through Wells Fargo Finet, or I'm independent with Northwestern Mutual, there's definitely some brand cache or brand familiarity with some of those firms that may or may not be the same if you're in the RIA world. So I would agree there's a lot to like about the independent BD world and there's a fit for people that is absolutely better with independent bds than on the RIA side. Even if some people would say RIA is better or cleaner, I wouldn't say that. To me there's, it's all about what an advisor's goals are, then matching that up with what these firms do. And there's, it's, there's never a perfect option. I uh, jokingly say if there was a perfect firm, we wouldn't be in business. Every firm kind of has their advantages or disadvantages and depending upon where an advisor is coming from, their style of business, their pain points, that'll match up really well with one firm or one type of firm or one model than the other. Let's pivot a little bit to the RIA world. A lot of your comments have been more about advisors affiliating or joining RIAs. This whole supportive version of independence concept. But what about advisors who want to go and start their own ria? They're, they're leaving a captive firm and taking the entrepreneurial route, starting their own firm or they're leaving an independent BD to go start their own ria? What do you see as some of the biggest misconceptions that advisors have about that move?

Speaker C: It's probably my favorite topic because there are the most misconceptions. I think in this space I'd agree. And I uh, would say there's nine out of 10 conversations that I have with advisors and teams. They start off with the uh, launching an RIA in mind or at Least RIA curious, right? And they want to understand what's out there, right? And probably, uh, less than half the time do these folks end up actually launching their own ria, which is okay, because the ones that do are massively successful. And they know they're dang sure that's exactly what they want to do. I think it gets a little bit romanticized sometimes that they'll say, um, oh, I'll just. I'll just give Schwab a call, or I'll just give the custodian a call as if they were shopping independent broker dealers. That's fine. You can do that and they will help you. But there's quite a bit more to think about, and it's not, in my opinion, the same as evaluating independent broker dealers. If it's all right. I was taught the four pillars of the RIA model. I can go through that with you, uh, really quickly. So the way to think about the RIA space is in four pieces. And shout out to a friend, Eli Suarez, that taught me this years ago. The first pillar, thinking of four pillars on a barstool, if you will. The first one being administration. And this is your compliance. This is setting up your adv, your llc, all of your business formation documents. The second piece being technology. What do you actually want to use? Because the benefits of the broker dealer world and the supported independent world is they've already built it for you, they've already paid for it and scraped their knees building it. In this case, you have to. And for some people, that's really exciting to source financial planning software and portfolio management software, and, um, your CRM and tax software, etc. For some people, it just sounds like a huge headache. Right? The third pillar being custodians. I have them third, because you want to make sure that the right custodian can integrate properly with the, uh, technology that you've sourced that you're passionate about. And then ultimately transition. What does a transition really look like? What are my legal and regulatory requirements? How does this work? What are the timelines, things of that nature? So I guess I would say in closing that if those four things are things that you really want to own, then you're in a really good position to consider an RIA launch. What do you think, Louis?

Speaker A: I think that's a great framework to break it down, not just be like, okay, I can tolerate that, or my team can do it. But I think you have to be, like, pretty excited about rolling up your sleeves and customizing and doing it yourself. Because in our experience, There's a nominal differential between the economics of running your own RIA versus affiliating with an RIA or going to an independent bd. All the extra work and responsibility, you're not really going to make it up, at least on the front end, on a higher net payout. So it has to be more about what the model means to you and having a vision that you don't think anyone else can accomplish other than yourself. And looking at that crazy ever expanding Michael Kitces fintech map and there's like 500 different logos on it and being like, yes, that's what I want, like I want to go through this. I want to pick the seven pieces of my tech stack that work for me rather than getting, here's the tech stack. Take a demo, you like it, you don't like it, take it or leave it to me. The two biggest misconceptions people have about the RA world is one, I'm um, gonna have to be a full time chief compliance officer. Just that compliance is this like boogeyman, this like terrible scary thing. In some ways it is. But the reality is Most especially startup RIAs will fully outsource compliance to a firm or they'll hire a compliance consultant or firms that are big enough even will hire a CCO or repurpose someone on their team to be cco. But compliance is much more streamlined and simpler than BD compliance. And ultimately it's compliance that's being built for your business rather than compliance that's being built for a publicly uh, traded multinational company that supports 20,000 financial advisors. So I think compliance is always a big misconception. It's definitely what a lot of firms will pry upon when they're saying like, oh, you're going to own all legal and regulatory requirements. You could, but it's definitely not a requirement. Then I think another one is folks sometimes underestimate and overestimate the operational burden and how much work it is to start an ria. Sometimes people just, they're perfect for the RIA world, that's their goal. But they get stopped in their tracks. They don't really know what to do. But what we've seen, we said it earlier with so many different outsourcing solutions and different service providers that have popped up. If you have the fire in your belly to go build something, it doesn't mean you're doing it by yourself. I mean that's what firms like ours do. The custodians are very helpful. On the flip side though, I have seen advisors chasing payouts say, hey, I'm just going to go start an RI because I want to make another 1 to 3% or whatever, whatever it comes to. And they drastically underestimate what it really takes to build a successful firm.

Speaker C: Exactly right. That I think that's my favorite one, Louis. Overestimating, estimating the operational burden there is. You could have the same conversation with two teams and it can go the completely different direction.

Speaker A: Josh, let's, let's wrap here. I got one more question for you that, that's, I think is an exciting one. But give me three key trends or storylines that most people don't know about or aren't talking about that you're passionate about or that you're sharing with advisors or counseling today.

Speaker C: Sure. This is the free advice portion. And I'll tell you what, Louis, it's, uh, all right with you. I'll give you two, and I would love to hear one from you as well. The first one I've seen in both the independent broker dealer and RIA space is the minority investor concept. A lot of folks will talk about the idea of taking chips off the table and starting to partially monetize your business. I think that's all important. But what I've found is that a lot of advisors really want their partner, whether it's an RIA broker dealer, to help them grow. And that could be with M and A opportunities, that could be with traditional recruitment of advisors, that could be building a business plan. But the minority investment part really helps accelerate that for a lot of businesses because all of a sudden, not only are you cashing out a small part of your business, but you've just created an ally with the parent entity that is now much more likely to help you grow in that capacity because they're insulated from it and they profit when you profit. So I think it's easy to be shortsighted and say, well, my equity is going to keep growing. Why would I sell you a piece of this? But I counsel folks often to really think about what that long term strategic partnership is and making somebody a real equity partner rather than just a vendor that provides you with technology and regulatory coverage. The other one I'd say is that, and this one's really important to me, that business formation is far more important than, uh, your assets under management said a different way. The way you build your business is going to make your business far more valuable than the number of dollars underneath your name.

Speaker A: Right.

Speaker C: And what I mean by that is, just to use an example, a sophisticated, well built, centralized, scalable and repeatable business, whether it's an RIA with a broker dealer that is going to fetch a far higher M and A multiple than a OSJ, um, with that's five times the size, that just has a bunch of 1099 independent advisors underneath the umbrella is what we've seen in the M and A space is that if you're going to shell out 50, 60, $80 million for somebody's business, you want to know that you have this business for the long term. So I would certainly, uh, counsel people that have been around maybe far longer than me to take a look at how you're building this and put together a business plan on what those next 10 years should look like and not necessarily fall into the trap where your only revenue source is the override that you receive from a firm and then you in turn pay to the advisors on your team.

Speaker A: Well said. I really like that line. We probably do a whole episode on, um, what are the tips and tricks for building a business with the end in mind? Like the Kobe quote, Begin with the end in mind. Like, transitions are like they're a bear. I mean, there's no way to sugarcoat it. Like advisors, when they hear transition, if you ask them, don't think about it. Give me your reaction. Terrible, risky. A lot of work. I'll never do it again. My friend did it and it was terrible. What if my clients don't come? It's all these, like, negative emotions. And in many cases, I don't blame an advisor because it is a big act. But to me, if someone is weighing making a transition, whether a wholesale business model change, going from being an employee to being independent, going from being a, uh, advisor at an independent BD to starting an RI or even going independent BD to independent bd, it's an opportunity, if you rise to the occasion, to build with this next act with intentionality. So whether it's restructuring, compensation for your team, converting people from 1099 to W2, putting in place new workflows, changing how investments, instead of it being each individual advisor doing investments, it's more of a centralized model, cleaning up workflows, really, investing in data, investing in AI, it's something that I think, again, we can have a whole episode on it, but I think it's a great one. Build the business the right way. And obviously businesses that are larger theoretically sell for more. But we've certainly seen businesses that are half the size of a larger one sell for a similar amount or more because they did all the right things. And the larger One did the things that really turn off a buyer or detract from a valuation. Let me give you one more and, um, tell me if you agree. But I think we're in this moment when altruist, the upstart new, a new kid on the block custodian, they launched a, a basically tokenization of cash in a way to automatically agentically source or sort cash to the highest yielding money market. And you're like, this is freaking wonky. Like, Louis, why are you telling us this? I think this is an important one just to keep a watchful eye on. I have no idea how this is going to shake out, but, uh, really the biggest way that independent bds or even custodians like Schwab and Fidelity really make money, it's not on their overrides from practices or the admin fee or the custody fee. It's really on net interest margin. So how much the broker, dealer or the firm is making on client cash and brokerage accounts relative to what they're paying out the client, it's essentially like free margin to these firms. And this concept, I think, has massive potential for disruption for the business model. Again, I don't know what it's going to look like, whether it means platform fees that are, uh, instituted at all these firms, whether it means certain models would be more beneficial than others, whether it means nothing's going to change, which is probably the right answer given this industry. But it's something to keep a watchful eye on. Just if your firm institutes a new platform fee or there's a fundamental way in which your firm can no longer make money, how are they going to make it up? Are they now going to be like, uncompetitive? They're not going to have as much scale or profits to invest in the platform. Is it going to cause even more consolidation in the industry? So to me, that's like the one pretty under the radar, pretty wonky storyline that I don't think enough people are talking about, but has the biggest possibility for disruption across their space than anything I've seen in a while.

Speaker C: Sure. That's the whole iceberg. Not a lot of people are talking about it. It's not poking out of the ocean, but it's going to be continuously brought up. I think it's a question that a lot of advisors are going to have to ask these firms. And at the end of the day, the firms aren't the bad guys. They have to make money too, to provide a quality product. So where the money comes from matters.

Speaker A: Exactly. Josh this has been awesome. I learned a lot talking with you and just having your objective consulting hat on what I think are really the differences between IBD and RIA and some of the key trends and storylines to watch has been instrumental. Also give a plug that on our website and we'll link to it in the show Notes. We have a really helpful one page reference guide going through the differences between independent BDS or IBDs and RIAs so feel free to click on it. We'll make sure it gets in your inbox. Josh, thanks again for joining us today.

Speaker C: Yeah, thanks for having me Lewis. It was a pleasure.

Speaker B: M As a financial advisor, you hold yourself to the highest standards of integrity, honesty and credibility. You are successful because you take your professional responsibility seriously and are dedicated to your clients. But are you living your best business life? Are your goals aligned with your firm's or could a better option exist? Should I Stay or Should I Go? Is a book written with you in mind. It's a self guided journey that walks you through the key steps that we take with our advisor clients. This strategic thought process and roadmap to professional self discovery is designed to help you ask the right questions and think critically and objectively whether you're considering change or not. Learn how to get your copy at diamond-consultants.com/the book.