It's been just over a year since Ed Swenson, former COO and co-founder of Dynasty Financial Partners, joined Osaic (then Advisors Group) as president of RIA Solutions, a newly created role.
Swenson was charged with creating and managing Osaic's RIA-only and hybrid channel strategy, along with developing a corporate RIA platform for fee-based advisors. He is also building a W-2 employee linkage model for RIAs using Osaic. Advisors who choose to join in this way come under Osaic's corporate RIA.
Swenson recently spoke with WealthManagement.com about what his team has accomplished in the last year, what RIA membership models look like, and how Osaic's RIA channel differs from other firms.
The following has been edited for length and clarity.
WealthManagement.com: What have you built at Osaic in the last year?
Edward Swenson: We are a very different company now than Osaic was two or three years ago. We are completing early next year in the first quarter of (what we call) Journey to One, which allows us to operate as one company under one broker/dealer. And part of that initiative, which is very important to (CEO) Jamie (Price) and the executive team that I've joined, is to grow our capabilities in the RIA and advisory part of the platform. I think we bring a unique scale to the market. And scale matters more now than it ever has in wealth management. And I think if you think about us as a wealth management platform, my job is to leverage that scale on behalf of the RIA ecosystem out there.
Whether that means different membership opportunities, whether that means leveraging the capabilities of our product platform, whether that means leveraging what we call our “favorable companies,” which are our trust capabilities, brokerage investment bank and asset management, on behalf of advisers. I also throw technology in there. All of these things are what I believe will drive growth in the RIA channel and ecosystem for the next several years.
WM: Can you expand on what the different membership options are?
ES: Since Jamie Price took over in 2016, our traditional business can probably be defined as traditional and hybrid broker/dealer. That would be our core business. With the acquisition of Infinex about two or three years ago, we added the institutional channel, which would be small banks and credit unions. In the United States, this is a total addressable market of $3 trillion.
We have also added the W-2 link. We added it under my leadership in the third quarter of last year. W-2 would allow us to buy books of businesses and have advisors on our platform in a W-2 capacity, not a 1099 capacity. That's a $14 trillion addressable market in the US
And the last one would be our fee-only membership model, and we're going to keep that going for the next year. And that would allow people to drop their FINRA licenses and operate out of the Osaic chassis, thereby getting all the benefits of our scale, but in an SEC-only, fee-only capacity.
WM: What does that W-2 form look like?
ES: There are several themes in wealth management, and one is that the RIA market is a relatively fragmented market. The W-2 channel allows us to purchase business books. You've seen a lot of players do that in the last decade. Interestingly, I think the actual benefit for Osaic is that we have a lot of advisors on our platform who will eventually retire, and that's our ability to help those firms by acquiring them. There's very little friction involved in that transaction, right? You do not need to repair your accounts; you don't have to go to another firm; you don't have to break relationships with your customers. We are happy to have that advisor around for three to five years. But it gives them certainty about what their ultimate succession plan will be and allows us to keep those assets on the platform.
We have about 11,000 advisers. So we're seeing a lot of interest from within for those advisors who are getting to that point in their career where they want to retire or want to transition their book. The W-2 template allows us to do that, instead of them going somewhere else.
There are about 16,000 RIAs in this country. Half of them have assets under $100 million. This market will continue to consolidate over the next decade. We want to be part of this trend. We want to consolidate it. And the W-2 channel allows us to buy those books of business. For those out there who want our scale, our skills, and our platform, they can join us through this new W-2 affiliate model.
WM: For advisors that join that affiliation model, do they operate under Osaic's corporate RIA?
ES: Yes, our corporation RIA and ADV.
I would say, this is a relatively independent model W-2. Meaning, we don't force everyone into model or product portfolios.
WM: Have you done any of those deals yet?
ES: We brought in a $1 billion team from Goldman Sachs late last year, led by Neal Slafsky, and we'll have some announcements before the end of this year.
WM: What does the paid model look like?
ES: I have another thesis that more advisors will look toward corporate RIAs as a destination. A lot of the movement has been towards independent RIAs where you set up your own ADV. What I'm seeing is a phenomenon I call the “boomerang advisor,” someone who went out on their own as an independent advisor and is turning into a corporate RIA. They are doing this because the regulatory environment is becoming more complex and the technological environment with cybersecurity issues is becoming more complex and more expensive. And they'd like to leverage someone like us to handle elements of that while they focus on research and their existing customers.
I think there's a misnomer that if you operate on someone else's ADV, you can't increase the value of the enterprise. This is not true. A corporate RIA allows you to offload much of that heavy lifting to an organization like ours, but in no way prevents you from having a liquidity event or selling your business at some point in the future. I believe a lot of people think you have to have an independent RIA to do this and you don't.
Apparently, this should allow you to actually be more profitable and get a higher multiple when you sell or exit at some point.
WM: What are you building according to that affiliation model that you don't currently have?
ES: We're very deep in hybrid RIAs where people use our platform, but there's always an element of FINRA, or broker/dealer commission, annuity, life insurance. But fee-only means you drop the FINRA license entirely, so this entity is different. A different platform, different policies and procedures and the new ADV that Osaic will launch.
You need technology that speaks specifically only to fees and RIA and not brokerage. We have an integrated technology stack called One Hub. You remove all the commission and brokerage elements of this and rebuild it specifically for an RIA. We have also been working on building a team that can serve RIA. It's elements of my past life behavior at this organization in a very clean RIA fee only environment.
WM: Has the firm consolidated all of its RIA corporate entities?
ES: It is in the process of doing so, and this is part of the Journey to One. If you look at our advisory services and corporate RIA, it's over half of our assets. All of this is being consolidated into one channel, the RIA Solutions channel.
WM: Do you have any advisors signed on in that fee-only model?
ES: We have a lot at Osaic that are helping us design this and think about what to use. We have many looking forward to completely shedding their FINRA licenses and joining this membership model. Osaic is very different now than it was three, four years ago, where we are now competing in many countries because of our scale and size.
WM: Which guardian will you use for that channel?
ES: We will use NFS and Pershing for custody.
WM: You mentioned earlier that your division would leverage product platform capabilities. What do you mean by that?
ES: There are three really cool product things we're doing recently. One, I've been a very big fan of live indexing over the last few years, so we've grown our product suite. We just recently implemented Canvas, which is a live indexing product.
In the last 15 years, people have switched from active to passive ETFs and passive mutual funds. This allows you to have liabilities but with tax collection and tax alpha. We are getting immediate interest and growth. It is also a product that has traditionally or historically been reserved for higher net worth individuals. One of our focuses is to increase our high net worth product offerings. I think this checks that box.
The second new product, which I believe is the table stakes for RIAs and the table stakes for HNWs, are alternatives. And we've had a very nice group of BDCs and REITs. We'll also be doing a lot more on direct alternatives, which speaks more to HNWs and UHNWs than more liquid BDC-type alternatives. This is my second big focus.
And then the third, we're now using SpiderRock, which was acquired by BlackRock. SpiderRock allows you to hedge using options and concentrated stock positions. Again, this is talking more about high net worth, ultra high net worth. Stock based on low cost, you don't want to sell because you realize profits. SpiderRock puts collars and options around those positions so you can get downside protection while you think about how to diversify your holdings. As we go to market, we'll be offering more products like this that really speak to the advisory and RIA market.
WM: For private equity and private credit strategies, are you using some sort of CAIS platform to access those?
ES: We use CAIS. And Lincoln Wealth, which we're in the process of integrating, uses iCapital. Both of these technologies will soon be available to all of our advisors.
WM: How will the RIA unit use Osaic's “advanced companies”?
ES: I think this is a game changer. We own these skills. These are not partnerships, these are not rentals. First, we own Premier Trust, which is based in the Dakotas, which is a great site for trusts. Premier allows our advisors to market. They don't manage money, so advisors continue to manage assets. But Premier Trust offers administrative trustee services. This is a huge need for high net worth advisors in the market.
The second is asset management capability, with Ladenburg Asset Management. Phil Blancato and his team are now worth $7 billion. They are one of the fastest growing asset managers on our platform. This provides a framework for the use of advisers. What are our capital market assumptions? How would we position ourselves? What do our model portfolios look like? The intellectual capital given to these advisors, which they can then use and exploit. All of these things are part of this ecosystem that we've created now to talk about high net worth.
We also have an investment bank. Our investment bankers have unique insights into various industries and sectors. Some of our advisors have been able to use it either with small business owners who are clients to gain insight, or simply to learn more about what's happening in industries and sectors.