Executive summary
Independence is four models and one custodian decision.
The word independent covers four different businesses, and advisors use it as if it meant one. An independent broker-dealer is not a hybrid RIA. A hybrid is not a pure RIA. A pure RIA is not an aggregator. They differ on what you own, what you take home, and how much of the business you run yourself. This paper lays out the four, the one legal line that separates independence from the wirehouse world, and the questions that decide which model fits a practice.
Spartan Advisory is independent. We are not a broker-dealer, a custodian, or an aggregator with a platform to sell you. Our job is to read your practice and show you which model the numbers actually favor, and sometimes that answer is to stay where you are.
Section 01 · The one legal line
Fiduciary, or suitability.
The line that separates independence from the brokerage world is the standard of care. A broker at a wirehouse operates under Regulation Best Interest: a recommendation must be in the client’s best interest at the point of sale, and the broker-dealer owns the client relationship. A registered investment advisor operates as a fiduciary under the Investment Advisers Act: a continuous duty of loyalty and care across the whole relationship, and the advisor or the RIA owns it. One is a sales standard, raised by Reg BI. The other is a fiduciary standard, set by law. Almost everything else about independence follows from that one difference.
- Suitability, raised to Reg BI
- The broker-dealer standard. A recommendation must be in the client’s best interest at the time it is made. The firm owns the relationship.
- Fiduciary, under the Advisers Act
- The RIA standard. A continuous duty of loyalty and care across the account. The advisor or the firm owns the relationship, and ownership is negotiable.
Section 02 · The four models
Four businesses, one word.
Each model keeps a different share of production, owns a different piece of the practice, and asks you to run a different amount of the business yourself. They run from the least independent to the most.
- 01
Independent broker-dealer
Affiliate with a firm such as LPL, Raymond James, Ameriprise, Osaic, or Commonwealth as a 1099 contractor. Payout ratios run roughly 80 to 92 percent of production, with net take-home around 65 to 70 percent after real estate, staff, insurance, and other business expenses, and you own the book. The broker-dealer carries compliance and much of the platform, so you run more of the business than at a wirehouse and less than at a pure RIA. Fits an advisor who wants ownership with a lighter operational lift.
- 02
RIA aggregator, or supported independence
Join a platform such as Captrust, Mariner, Sanctuary, or Dynasty that supplies compliance, trading, operations, and marketing for a share of revenue or in exchange for equity. Terms vary deal to deal and typically include an equity stake in the aggregator, with the potential for a 4x to 5x exit multiple on revenue and several routes to liquidity. You own the client relationships and often hold equity in something larger than your own book, with a succession buyer built in. Fits a team that wants independence without running the plumbing.
- 03
Hybrid RIA
Run fee-based business through your own RIA and hold commission business at a broker-dealer. Net payout runs roughly 65 to 75 percent, the practice can exit at 4 to 5 times revenue, and you own the RIA. Fits a book with meaningful legacy commission or brokerage assets that cannot all convert to fee at once.
- 04
Independent RIA
Form your own RIA, custody with Schwab, Fidelity, or Pershing, and run the business end to end. Net payout runs roughly 65 to 75 percent, you own the whole firm, and it carries the highest practice valuation, typically 6 to 8 times annual revenue for well-run firms. It also carries the highest regulatory responsibility and the steepest learning curve. Fits an advisor with the scale and the runway to build.
Exhibit 01 · Exit multiple on revenue, by model
Net payout barely separates these models: about 65 to 70 percent at an independent broker-dealer, 65 to 75 percent at a hybrid or your own RIA. What separates them is the multiple the practice sells for at the end. A well-run RIA can reach 6 to 8 times revenue. RIA exits are generally struck on EBITDA and shown here as a revenue multiple.
Exhibit 02 · The four models compared
Read the multiple, not the payout. What you take home each year is similar across these models. What differs is what the practice is worth when you sell it, and how much of the business you run yourself to get there.
Section 03 · The custodian decision
Custody is the platform decision.
In the RIA world the custodian holds the assets and supplies much of the technology, so the choice shapes the daily experience of the practice. Schwab, Fidelity, and BNY Pershing hold most independent assets, and Goldman Sachs and others compete for the top end. The right custodian turns on asset size, the technology the practice runs on, and the service model the clients expect. It is a decision worth making deliberately, not by default.
Section 04 · Choosing
Four questions decide the model.
- 01
What do you want to own?
A larger paycheck along the way, or an asset you sell at the end. That single answer rules several models in or out.
- 02
How much of the business do you want to run?
Compliance, technology, hiring, and vendor management sit with you at a pure RIA and with the platform at an IBD or an aggregator.
- 03
What is in the book?
A fee-based book converts cleanly to a pure RIA. A book with meaningful commission or brokerage assets points to a hybrid.
- 04
What is the exit?
An open-market sale, an internal succession, or equity in a larger platform. The exit you want narrows the four to one.
Independence is not one decision. It is a model, a custodian, and an exit, chosen in that order against a real book. We run that analysis for you, and when the numbers say stay, we say stay.Pete Secret · Founder, Spartan Advisory
Pete Secret
Find the model your numbers favor.
Considering a change? Give us a call or shoot us an email for a confidential discussion.
Sources · Investment Advisers Act of 1940 · SEC Regulation Best Interest · Schwab, Fidelity, and BNY Pershing custody data · Kitces · Spartan Advisory analysis
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