Deciding whether to affiliate directly with a broker-dealer or join an existing OSJ involves evaluating factors in your own business, including finances, culture and contractual relationships
Financial advisers making the move to independence face a slew of decisions. Among them are whether to obtain a Series 24 license and become your own office of supervisory jurisdiction, join a firm that provides oversight through its back office or join an existing OSJ group to provide supervision and additional support.
Today we are seeing more and more advisers — often successful, established producers — join OSJ groups. In the past, only producers not meeting minimum-production levels chose this option.
There are plenty of reasons to join an OSJ.
High-touch/high-service. Affiliation with an OSJ group can provide the intimacy of a smaller firm, combined with the strength and stability of a large broker-dealer. The benefits of the extra support can be apparent in many areas, including increased transition services, operational efficiencies and expedited compliance reviews. According to Greg Raines, president of Atlantic Financial Group LLC, an OSJ with Cambridge Investment Research Inc., one of the things that advisers appreciate most at their firms is the significant amount of time spent guiding them on how to succeed in today's complicated regulatory environment.
Economies of scale. Because broker-dealers typically can give larger producer groups more competitive pricing on items such as payout, ticket charges and basis points on fee-based accounts, many advisers find that joining an OSJ group represents a better deal financially than joining the broker-dealer directly.
Lead generation. Some OSJs offer lead-generation programs not offered directly by broker-dealers, such as ones based on geography or specific niches. For example, The Retirement Group LLC, an OSJ with FSC Securities Corp., focuses on retirement business and refers individuals retiring from major corporations to affiliated advisers.
Practice management and coaching. To provide their advisers access to experts such as attorneys and certified public accountants, as well as to coaching, some larger OSJs hold their own conferences. These offer opportunities to network and share ideas, as well as professional camaraderie.
Deciding whether to affiliate directly with a broker-dealer, become an OSJ or join an existing OSJ involves evaluating many factors in your own business, including finances, culture and contractual relationships.
Does it make financial sense for you? Affiliating with an OSJ requires paying an override for supervision. Evaluating whether the override is worth the extras for your business is important. Although we see more advisers joining OSJ groups, we also see them leaving OSJ groups because they don't think that the benefits are worth the fees for services provided. Supervisory services include the monitoring of trades and e-mails, keeping pace with changing regulatory procedures and ensuring that the procedures are followed by affiliated advisers. Most OSJs provide supervisory reviews, usually annually, of their advisers' businesses.
Typically, using an OSJ incurs a 2% to 10% override for supervision only and as much as 10% to 25% for additional benefits such as office space, administrative support or referrals. For many advisers, the fees are well worth the costs.
Is the culture a good fit for your practice? One of the most vital intangibles in helping advisers select broker-dealers and OSJ groups is whether their businesses have cultural synergy. This is even more important when choosing an OSJ group because, in most cases, advisers work more closely with their OSJ than with their broker-dealer. Finding an OSJ group with a similar business model and culture is important.
Do you have a safety net? Affiliating with any organization usually involves taking precautions to make sure that you will be protected if you leave. Joining an OSJ isn't the ideal choice for every adviser, so assess your options carefully. When there is conflict between advisers and their OSJ, the broker-dealer typically will support the OSJ's decision on how to handle the conflict. If you affiliate with an OSJ group, have a clause in your contract stating that, if you choose to leave after you have met the terms of your agreement, you can remain affiliated with the broker-dealer and obtain your Series 24 license for supervision.
Perhaps what is most important is evaluating your options carefully and choosing the scenario that is best for you and your business.
Jodie Papike (jodie@cross-search .com) is executive vice president of Cross-Search, a third-party, independent broker-dealer adviser, consulting and executive placement firm.
