How Brokers And Agents Can Get Paid Directly For Delivering A Financial Plan

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EXECUTIVE SUMMARY

For decades, financial planning was compensated primarily by the insurance or investment products that were implemented at the end of the plan. But as advisors increasingly become more financial-planning centric, and bring financial advice to clients who don’t necessarily want or need to implement products – they just want the advice – there is a growing desire from many advisors to simply get paid directly for the financial planning advice they provide and the plans they deliver. With the caveat that technically, it’s not permissible to be paid a standalone fee for financial planning advice as a broker or insurance agent!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore how advisors are licensed to deliver financial advice, why you can’t receive fee-for-service compensation through a broker-dealer or insurance agency, and how you must be registered in order to get paid a planning fee (if your firm will allow it!)!

Most “financial advisors” are licensed and registered in one of three ways: either you are a registered representative of a broker-dealer, an agent of an insurance or annuity company, or you are an investment adviser representative (IAR) of a Registered Investment Adviser (RIA). These licenses dictate what advisors can, and cannot, do, and how they may be legally compensated: if you have an insurance license, you can sell insurance… If you have a securities license, you can sell securities… And if you have a license to be an investment adviser, then you can “sell” (and get paid for) investment advice.. Of course, some advisors are licensed multiple ways, but the fundamental point is that technically, getting paid for advice is only associated with the third category: having your Series 65 and being an IAR of an RIA.

As a result, advisors increasingly are becoming dually-registered with their broker-dealer and a corporate RIA, or operating as a hybrid with their own standalone independent RIA separate from their broker-dealer in order to get paid for their financial plans. Because again, you do need to be associated with an RIA to get paid for financial advice… though when you’re also with a broker-dealer, it must be disclosed to a broker-dealer as an Outside Business Activity, which in turn must be approved by your B/D). Which means in practice, not all advisors at a broker-dealer can actually charge for a financial plan, either because the broker-dealer does not have a corporate RIA, won’t allow the advisor to have an outside RIA as an OBA, or both. And even broker-dealers that do permit such activities still have the ability to decide which advisors will be approved to do so… and how.

As a result, the ability to become dual-registered and operate under the broker-dealer’s corporate RIA, or have your own independent RIA as a hybrid, is increasingly turning into  a differentiator itself in the selection of a broker-dealer. Which has implications both for the control that the advisor has over their financial planning services and compliance oversight, and also the financial split of the fees between the broker-dealer and the advisor. Not to mention the technology that the advisor can, cannot, or must use to process those financial planning fees.

Nonetheless, the fundamental point is that if you’re at a broker-dealer or an insurance agency, and you want to actually get paid directly for a financial plan and giving financial advice, you need to operate under an RIA. It can be your broker-dealer’s corporate RIA, or your own independent RIA if your broker-dealer will allow it (or you can just break away from the broker-dealer and start your own RIA), but one way or another, you need to pass your Series 65 and be affiliated with an RIA if you are going to receive “fee-for-service” compensation for financial advice!


Michael Kitces

AUTHOR: MICHAEL KITCES
TEAM KITCES

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning NetworkAdvicePayfpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when a new broadcast is starting! You can also submit your question in advance through his Contact page!)

READ TRANSCRIPT >

This is Office Hours with Michael Kitces, normally 1 p.m. East Coast time on Tuesdays, but as you can see from the background, I’m traveling this week, so here we are on Wednesday instead. But thanks for joining us, everyone, and have a great day.

So what do you think? Have you ever had a challenge with a broker-dealer or insurance company that wouldn’t let you actually charge a fee for your financial planning advice? Have you ever changed broker-dealers just to find one that would be more willing to accommodate your desire to deliver fee-for-service financial advice? Please share your thoughts in the comments below!

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