![]() There are several firms out there that will buy out an existing firm entirely. Lastly, advisors can grow through acquiring, or merging with, existing advisory firms. This is just one more piece of information that a prospective client should have in hand when deciding whether to hire an RIA. Second, the RIA should disclose such arrangements in the Form ADV that they file with the SEC, which can usually be found at A paid solicitation is different from an unpaid referral, and a prospective client might have a very different perception of client growth based on referrals from people who expect nothing in return versus growth based on paid solicitations. First, the person making the referral (and being paid for it) should provide the prospective client with a document that discloses certain information about his or her arrangement with the RIA, including the fee to be paid. Such referral arrangements should be disclosed in two ways. However, such arrangements should be disclosed to the client so that they can evaluate the potential conflict of interest and make an informed decision. There is nothing inherently wrong with such arrangements, or other referral situations in which an RIA pays for client leads. Oftentimes this fee is a portion of the advisory fee charged to the client for a certain period of time. In this scenario, the RIA pays a cash fee to someone who is not an employee of the RIA to find clients and make introductions. RIAs can also use third-party solicitors to find new clients. Another example is a situation similar to that which I described earlier where an attorney or CPA refers his or her own clients to an RIA, but the RIA pays the attorney or CPA either a flat fee or a percentage of the fees billed to the client. Don’t just assume they are doing it out of the kindness of their heart. ![]() Therefore, it is important to ask the broker who makes the referral if they have sales targets they need to meet and/or if they personally benefit from the referral. While there may be several other factors that lead a broker to refer a client to a certain RIA, the possibility of a referral fee is certainly one that should be considered when a client is deciding whether to hire a particular RIA. In some situations, this referral fee might continue for as long as the client stays with the RIA. In return, those brokerage companies may receive a portion of the fee paid by the client to the RIA, typically 0.25%. Fidelity, Schwab, TD Ameritrade) have referral programs where they send certain clients to pre-screened RIAs for wealth management services. Most of the discount brokerage companies (e.g. For example, an RIA also might get new clients from affiliated broker-dealers who serve as custodians for the RIA or perform other services. On the other side of the spectrum, an RIA might obtain new clients through paid leads. In some such cases, the attorney or CPA simply does so to develop a relationship with the RIA with the hope that the flow of referrals will go both ways. Similar to an organic referral from an existing client, an RIA might also receive referrals from a professional service provider, such as an estate planning attorney or certified public accountant, with whom the RIA has an existing relationship. So, it is worthwhile to ask an RIA about the percentage of their client growth that comes through organic referrals from existing clients. Otherwise, clients wouldn’t be referring friends, family members, and colleagues and risking those relationships. What does that tell a prospective client or an advisor looking to join the RIA? Usually, if an RIA is receiving a lot of organic referrals from existing clients, it is reasonable to assume that they are doing a good job for their clients. Most RIAs use organic referrals as at least one component of their business development plan, and indeed for some it is their only avenue for growth. ![]() An organic referral typically involves an existing client of an RIA who provides the RIA with a potential client introduction without receiving anything of value in return. One of the most common ways RIAs get new clients is through what I will refer to as “organic” referrals from existing clients. So, let’s take a look at the different models and how they can affect you as an end user … Organic Referrals The particular business development model used by an RIA can give you valuable insight into, among other things, how the company may work with you and what is important to them. ![]() RIAs use various tools to develop clients and grow their business. Understanding how an RIA gets their clients can be an important consideration for prospective clients of an RIA and for individual financial advisors looking to join an RIA. Understanding how an RIA gets clients can be an important factor for prospective clients or for advisors looking to join an RIA.Įvery registered investment adviser (RIA) is looking for the same thing, more clients.
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