RIA versus Broker Model Analysis

As the retirement market continuously changes, so must our advisor partners strategic action plan. One key area of decision making is the RIA versus broker model. Each model has its own set of benefits and potential issues created by new fiduciary regulations and definitions. This impacts the value perception, compen- sation levels and of course fiduciary status. With the advent and emphasis on fiduciary responsibility and liability, is the RIA fiduciary model perceived by the Plan Sponsor as a better value proposition because of their fiduciary status? Should the broker model define its value proposition through participant education? Should the broker model embrace the recordkeepers' solution of offering Section 3(21) fiduciary status to offset this perceived value difference? APG has significant experience to strategically guide and answer these questions. We have an innate knowledge of both models. We provide extensive qualitative analysis of the comparative differences. As we assist our advisor partners with the intricacies of each service model, the logical decision tree process becomes clear.

As the RIA model contains an explicit fiduciary status, the broker model may have implicit fiduciary issues to avoid. Defining these key drivers within the service model provides clarity and avoids potential Prohibited Transactions. Some of these critical component definitions are the following:

  • Is providing an RFP and recommending a recordkeeper a non-fiduciary function?

  • What is the difference between advice and guidance on a Plan Sponsor and participant level?

  • Are fund recommendations crossing a fiduciary line?

  • What are the allowable compensation structures such as level compensation, basis points, finder's fees or flat dollar between the two models?

All of these issues must be carefully clarified for our advisor partners so prudent decisions can be made with regard to the right model. Once this process has occurred, documenting the service model is key to supporting its underlying founda- tion and demonstrating to the Plan Sponsor the critical value of the advisor!

Thanks to our Sponsors