The Rise Of Independent Registered Investment Advisers: A Shift Away From FINRA

In recent years, a significant trend has emerged in the world of financial advising. An increasing number of financial advisors are making the bold decision to part ways with their FINRA (Financial Industry Regulatory Authority) member broker-dealer firms and, instead, opt to start or join a registered investment adviser (RIA). This transition has been fueled by several factors, including regulatory changes, the allure of independence, and the growing realization that the RIA model may offer a more client-centric approach to wealth management. In this blog, we’ll delve into the reasons behind this shift, using data from the “Investment Adviser Industry Snapshot 2023,” and explore why financial advisors are choosing to embrace the RIA model.

Regulatory Contrasts: FINRA & The RIA Model

The financial advisory industry’s regulatory landscape has a profound impact on advisors’ choices, and the shift from a FINRA-member broker-dealer to the RIA model is driven by stark regulatory differences. FINRA, known for its stringent oversight, has traditionally operated under a suitability standard, providing investments’ appropriateness for clients. However, this standard did not explicitly require advisors to act in their client’s best interests at all times. Recent years have seen FINRA adopt Regulation Best Interest (Reg BI), aiming to align recommendations with clients’ best interests. While well-intentioned, Reg BI compliance can impose heavy administrative burdens, complicating advisors’ adaptability to market changes.

Concurrently, concerns about FINRA’s authority have arisen, with claims of arbitrary disciplinary actions. The organization’s perceived lack of oversight and power abuse has raised questions about its role in the financial advisory landscape. In contrast, the SEC oversees RIAs’ adherence to a fiduciary standard, which demands that advisors act in their client’s best interests. RIAs are held to higher standards of transparency, conflict mitigation, and client-centricity, which resonates with advisors seeking a more client-focused approach. This regulatory disparity has driven the trend of advisors transitioning to the RIA model, emphasizing the importance of regulatory frameworks in shaping the industry’s direction.

Independence & Flexibility

Also enticing to financial advisors is the autonomy and flexibility that come with the RIA model. As registered representatives of broker-dealers under FINRA, advisors often work within a structured framework that can limit their ability to freely choose investment strategies and products. In contrast, RIAs have more control over their business operations and can tailor their services to meet their clients’ specific needs.

Furthermore, the RIA model allows advisors to choose from a broader range of investment options, which can be particularly appealing in a rapidly changing market environment. This flexibility enables RIAs to pivot swiftly and thereby capitalize on emerging investment opportunities, ultimately benefiting their clients.

Client-Centric Approach

The core ethos of the RIA model is a client-centric approach. RIAs are legally bound to act in their client’s best interests, fostering a relationship of trust and transparency. This client-first mentality can be a significant selling point for advisors looking to differentiate themselves in a competitive market and start an RIA.

Cost-Effective Compliance Solutions

Compliance may be a stumbling block for advisors considering starting an RIA. However, industry data indicates that there are cost-effective compliance solutions available for RIAs. The “Investment Adviser Industry Snapshot 2023” may serve as a valuable resource for illustrating how RIAs have successfully navigated compliance requirements without breaking the bank.

AdvisorLaw is at the forefront of providing cost-effective compliance solutions that empower financial advisors to transition to the RIA model and seamlessly start an RIA. Recognizing the hurdles that advisors often face when it comes to compliance, AdvisorLaw offers a comprehensive suite of services designed to alleviate these burdens.

One of our standout offerings is ongoing compliance support, which allows RIAs to remain in compliance with evolving regulations — without overwhelming administrative overhead. This service provides advisors with expert guidance and real-time updates, helping them navigate the complexities of regulatory changes efficiently. 

AdvisorLaw also offers Outsourced Chief Compliance Officer (CCO) services, allowing small and emerging RIAs to access seasoned compliance professionals without the need for full-time, in-house staff. Moreover, our cybersecurity solutions are tailored to protect sensitive client data and maintain the trust that is crucial in the financial advisory industry. 

In a landscape where compliance can be seen as a financial barrier, AdvisorLaw’s commitment to delivering cost-effective solutions paves the way for a smoother transition to the RIA model, giving advisors the time to focus on what truly matters — serving their clients’ best interests.

Are you looking to take your financial advisory career to the next level? 

The financial advisory landscape is evolving, and there has never been a more opportune time to consider either starting your registered investment advisor (RIA) firm or joining an established RIA. Here’s a compelling case for why this transition could be a game-changer for your career:

1. Unprecedented Surge In The RIA Industry

The “Investment Adviser Industry Snapshot 2023” reveals an astonishing growth trajectory for the RIA model. The numbers speak for themselves — RIAs are on the rise, and the industry is thriving. By joining the RIA community, you position yourself amid this growth, giving you access to a dynamic and expanding market.

2. A Solution For Pain Points

We understand the pain points that often plague financial advisors within the FINRA system. The regulatory constraints and conflicts of interest can be stifling, affecting both your ability to serve your clients effectively and your job satisfaction. Transitioning to an RIA can alleviate these challenges. With a strong emphasis on fiduciary duty and client-centricity, the RIA model allows you to prioritize your clients’ best interests, without the regulatory bureaucracy often associated with FINRA.

3. An Alluring Incentive

Join us for AdvisorLaw’s RIA Formation Week — taking place from January 15th to January 19th — and take advantage of our incredible offer. By selecting AdvisorLaw for your RIA formation, you’ll unlock a $1,500 compliance credit to support your firm in meeting all the required regulatory standards. This credit alleviates financial concerns associated with the transition, while also helping your firm to meet all necessary regulatory standards.

Contact AdvisorLaw Today

Ready to transform your New Year’s resolution into a reality by launching your very own RIA firm? The growing trend of financial advisors leaving FINRA-member BDs and successfully transitioning to the RIA model is a testament to the changing landscape in the financial advisory industry. Regulatory shifts, a desire for independence, and a commitment to client-centricity are the driving forces behind the shift. Ultimately benefitting both advisors and their clients, this trend is likely to continue its upward trajectory.

If you’re considering making the move to the RIA model, or you’re seeking guidance on how to form an RIA, don’t miss AdvisorLaw’s RIA Formation Week — taking place from January 15th to January 19th. AdvisorLaw provides expert guidance for starting an RIA, transitioning within or outside the protocol, and forming or joining an RIA. Our team is here to support your journey to success in the evolving financial advisory landscape.  

Contact us today to sign up for Formation Week or to schedule a complimentary consultation with one of our experts. 

Blog Contact