Simplifying and Accelerating Your Advisory Business

What's a third-party RIA?  What’s a ‘friendly’ broker-dealer?

You can also read the article as originally published on CUManagement.com

By Mike Prior

This is the second in a three-part series to help prioritize the burning issues that face credit union leaders, offering actionable tips to help grow wealth management departments. 

Financial literacy has never been more important. Your members, as well as all the people you’re trying to reach through your marketing efforts, need education and assistance with growing and protecting their assets, either for themselves or someone in their family.

Consider these facts: 60% of the public has an investment account somewhere, according to Scott Stathis of Stathis Partners, which serves the bank and credit union investment and insurance services space. According to Schroders 2023 US Retirement Survey, working Americans ages 45 and older on average believe it will take $1.1 million to retire comfortably. But just 21% say they’ll reach $1 million.  

Moreover, we’re in what the New York Times recently described as, “the greatest wealth transfer in history.” To dive a little deeper, the Times reported, “Most will leave behind thousands of dollars, a home, or not much at all. Others are leaving their heirs hundreds of thousands, or millions, or billions of dollars in various assets.

“Of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, $16 trillion will be transferred within the next decade.”

These numbers are staggering and meaningful to you and your team.

Your members clearly need your help. So why is it that many credit union investment departments only reach 2 to 5% of their membership?

For decades, many credit unions have worked with third-party broker-dealers (TP-BD) to help them offer services to members. While these relationships have been convenient for credit unions, they have come with limitations such as high minimums and fees for investors. In recent years, however, more flexible options have entered the picture to lower costs for members, while helping credit unions improve their net income.

To Bundle or Not to Bundle?

Here’s a brief explanation of today’s investment management services landscape:

• Bundled: Some TP-BD firms use a bundled broker-dealer, registered investment advisor (RIA) and custodian approach. These are typically publicly traded or owned by private equity firms and have a proprietary technology platform and proprietary products.
• Unbundled: Some “friendly” TP-BD firms allow independent RIAs to leverage larger custodians as well as open Application Programming Interface (API) fintech platforms. These flexible models allow for lower overall costs for the client and credit union. In addition, they allow for more customization around digital advice solutions, such as a robo-advisor option, designed to strengthen existing member relationships and engage younger members.

If your credit union has a wealth management department or is starting one, then you will find more flexibility, control and profits in an unbundled model. However, if your credit union’s financial advisors are primarily product oriented with less than 50% of assets in advisory services, then the bundled model may be a better fit.

Enter the Third-Party RIA: Four Key Features

Today, some credit unions have more than 80% advisory business, the industry average for banks/credit unions is approximately 40%, and unfortunately, some credit unions are still under 25%.  Keep in mind there are tens of thousands of quality financial advisors in the nation helping clients who are 100% advisory. Naturally, the right mix of RIA and broker-dealer business should depend on the infinite long-term needs of the members and their families, not on finite short-term goals.

This is where a fiduciary-forward third-party RIA (TP-RIA) firm can help.

How does a TP-RIA fit into the investment services landscape? Here are the four key features to look for when you get to the point where unbundled is your choice:

1. Independent RIA contracted directly with established custodians like Charles Schwab and Fidelity.
2. Independent from any TP-BD’s proprietary corporate RIA.
3. Dedicated chief compliance officer with financial institution and Securities and Exchange Commission regulation experience.
4. No minimum account size and access to small account solutions.

While the industry has approximately 30,000 RIAs, applying the above standards will help you determine if they are a true TP-RIA committed to helping you attract more members and quality advisors.

If you’re feeling bundled or boxed today, then it would be wise to research your unbundled options. If your team isn’t there yet, there are industry consultants who can help you develop a path forward to help you serve your current members better—and attract the 60% of your membership who have an investment account held away from your credit union.   

Mike Prior is the CEO of Priority Financial Group, a third-party registered investment advisor (TP-RIA) serving credit unions and financial advisors. He has decades of experience in the securities industry, as well as dedicated expertise helping financial advisors and credit unions achieve their unique goals. Mike is a pioneer in introducing the Charles Schwab and Fidelity advisory platforms to credit unions, and a recognized industry expert in implementing a best practices approach to taking credit union investment programs and advisor practices to their next level. For more information, visit Pfgteam.com, call 800.405.8850 or contact Mike directly at Priorm@pfgteam.com.

Advisory services offered by PFG Advisors. Securities offered through Osaic wealth inc., member FINRA/SIPC. PFG, PFG Advisors, and Osaic wealth inc. are separate entities.