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The Evolving OSJ: Emerging Business Models

Prepared for: AssetMark, Inc.



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TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................................................................................... 4

WIDENING VALUE PROPOSITIONS EFFECT THE ENTIRE WEALTH MANAGEMENT CHAIN ........................ 6

INTRODUCTION .............................................................................................................................................. 7

METHODOLOGY ........................................................................................................................................ 7

CURRENT LANDSCAPE AND INDUSTRY TRENDS ............................................................................................. 8

INDUSTRY CONSOLIDATION ................................................................................................................ 8

SUPERVISION ....................................................................................................................................... 9

ADVISOR RECRUITING AND TRANSITIONING ...................................................................................... 9

GROWTH IN FEE‐BASED MANAGEMENT ........................................................................................... 11

THE EMERGENCE OF THE VALUE‐DRIVEN PRACTICE ......................................................................... 12

UNDERSTANDING THE OSJ MODEL .............................................................................................................. 13

PARTICIPANT OVERVIEW ........................................................................................................................ 13

SEGMENATION ........................................................................................................................................ 14

TRADITIONAL OSJS ............................................................................................................................ 15

FACILITATORS .................................................................................................................................... 15

BUSINESS BUILDERS .......................................................................................................................... 15

BUSINESS BUILDERS SUPERVISE APPROXIMATELY ........................................................................... 15

STRENGTHS AND WEAKNESSES OF EACH MODEL .................................................................................. 17

TRADITIONAL OSJS ............................................................................................................................ 17

FACILITATORS .................................................................................................................................... 17

BUSINESS BUILDERS .......................................................................................................................... 17

THE EVOLUTION OF THE OSJ BUSINESS MODEL ........................................................................................... 19

EMERGING SERVICE MODELS ................................................................................................................. 19

PERFORMANCE METRICS ........................................................................................................................ 20

REVENUE SOURCES ........................................................................................................................... 20

REVENUE GROWTH ........................................................................................................................... 21

ADVISOR PAYOUT RANGE ................................................................................................................. 21

CLIENT ASSETS PER ADVISOR ............................................................................................................ 22

FEE‐BASED ASSETS AS A PERCENTAGE OF TOTAL CLIENT ASSETS ..................................................... 23

ADVISOR PRODUCTIVITY ................................................................................................................... 23

DRIVERS OF PERFORMANCE ......................................................................................................................... 25

AREAS OF SUCCESSES AND CHALLENGES ............................................................................................... 25

LEADERSHIP AND STAFFING .................................................................................................................... 28

LEADERSHIP ....................................................................................................................................... 28

STAFFING ........................................................................................................................................... 28

TECHNOLOGY .......................................................................................................................................... 29

SERVICES ................................................................................................................................................. 31

PRACTICE MANAGEMENT ................................................................................................................. 32

MARKETING ............................................................................................................................................ 33

CONCLUSION ................................................................................................................................................ 35



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LIST OF FIGURES FIGURE 1: INDUSTRY TRENDS AFFECTING OSJS .............................................................................................. 8

FIGURE 2: NUMBER OF U.S. BROKERAGE FIRMS ............................................................................................ 9

FIGURE 3: FINANCIAL ADVISORS AFFILIATED WITH WIREHOUSES ............................................................... 10

FIGURE 4: ESTIMATED PERCENTAGE OF CLIENT ASSETS IN FEE‐BASED MANAGEMENT PROGRAMS .......... 11

FIGURE 5: PERCENTAGE OF REVENUE DERIVED FROM RECURRING AUM‐BASED FEES BY ADVISORS WITH

INDEPENDENT AND INSURANCE‐AFFILIATED BROKER‐DEALERS ........................................................ 12

FIGURE 6: OSJ SEGMENTATION .................................................................................................................... 16

FIGURE 7: EMERGING SERVICE MODELS ...................................................................................................... 19

FIGURE 8: REVENUE SOURCES ...................................................................................................................... 20

FIGURE 9: REVENUE GROWTH ...................................................................................................................... 21

FIGURE 10: ADVISOR PAYOUT ...................................................................................................................... 22

FIGURE 11: CLIENT ASSETS PER ADVISOR ..................................................................................................... 23

FIGURE 12: FEE‐BASED ASSETS AS A PERCENTAGE OF TOTAL CLIENT ASSETS ............................................. 23

FIGURE 13: REVENUE PER ADVISOR ............................................................................................................. 24

FIGURE 14: OSJS’ RELATIVE SUCCESS IN KEY AREAS ..................................................................................... 25

FIGURE 15: OSJS’ RELATIVE CHALLENGES IN KEY AREAS .............................................................................. 26

FIGURE 16: SELF‐IDENTIFIED STRENGTHS OF OSJS ....................................................................................... 27

FIGURE 17: OSJ’S NET GAIN IN ADVISORS AS A RESULT OF RECRUITING EFFORTS ...................................... 27

FIGURE 18: PERCENTAGE OF OSJ PRINCIPALS MANAGING THEIR OWN BOOK OF BUSINESS ...................... 28

FIGURE 19: NUMBER OF ADVISORS PER STAFF MEMBER ............................................................................ 29

FIGURE 20: TECHNOLOGY SOURCING .......................................................................................................... 30

FIGURE 21: AREAS OF TECHNOLOGY ADVISORS SEEK TO IMPROVE ............................................................ 31

FIGURE 22: SERVICES PROVIDED BY OSJS ..................................................................................................... 32

FIGURE 23: PRACTICE MANAGEMENT SERVICES PROVIDED BY OSJS ........................................................... 33

FIGURE 24: MARKETING SERVICES PROVIDED BY OSJS ................................................................................ 34

LIST OF TABLES TABLE A: PARTICIPANT OVERVIEW ............................................................................................................... 13

TABLE B: SEGMENT DESCRIPTIONS – QUALITATIVE ..................................................................................... 16


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EXECUTIVE SUMMARY

Amidst a backdrop of increasing regulatory requirements, rapid technology innovations and competition

from traditional and emerging players, financial advisors are continuing to evolve and shift to value‐

based practices. As this progression continues, broker‐dealers (“BDs”) that directly support advisors are

compelled to adapt to keep pace and drive growth. The role of the Office of Supervisory Jurisdiction

(OSJ) is no different and progressive OSJs have launched new business models to take advantage of

opportunities presented in the shifting landscape.

OSJS: EVOLVING, GROWING, DIFFERENTIATING

Today’s OSJs have more reasons and new opportunities to look beyond their role in supervision. Since

2002, the number of FINRA‐registered BDs have decreased by approximately 25%, primarily driven by

consolidation. Whether intended or not, OSJs have become an extension of BDs providing an avenue for

deeper personal relationships and expanded service offerings.

At the same time, more advisors are moving away from captive channels and are going independent.

Firms providing a plug‐and‐play operational infrastructure that allows advisors to start up quickly are

becoming an attractive option for newly independent or transitioning advisors. For OSJs, these services

move beyond supervision to full service operational and consulting support.

To understand trends in the OSJ model this study analyzed affiliation options, branding, recruiting

approach, advisor compensation, services provided, advisor standardization, and technology. Three

models emerged:

Traditional OSJs: Supervision is the Traditional OSJ’s primary role; activities beyond supervision are

usually an extension of the underlying BD offerings with minimal direct support from the OSJ.

Traditional OSJs often promote their reputation, referral network, and personal relationships with

drivers of value.

Facilitators: These OSJs have taken the traditional OSJ model a step further by providing business

building services such as practice management or marketing support. While this segment offers

complementary support, the support and services are not part of a formal service offering designed

to stand on its own. In essence, they are truly facilitating the advisor experience, acting as a liaison

between the advisors they supervise and their BDs.

Business Builders: These OSJs are engaged in providing services to advisors on a turnkey or

customized basis. Business Builders tend to identify specific areas where they can assist advisors,

including practice management, marketing, technology and leadership support. In the industry, this

model may often be referred to as a Super‐OSJ, but this survey reveals that a group of smaller,

progressive OSJs are also adapting this full‐service model with the goal of building sustainable,

transferable businesses.

While this study show how the services and support offered by OSJs impacts their relative business

performance, it should be noted that evolving an OSJ model requires the OSJ to work within the

framework of what is permitted by affiliated broker‐dealers. Long‐term, relationship‐building services

and the regular revenue streams provided by fee‐based business make Business Builders stand out. For

most performance indicators, a trend emerges as performance ranks in order from Business Builder to

Facilitator to Traditional OSJ.



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Revenue Sources: All OSJs have a portfolio of advisors with both fee and commission‐based revenue.

Business Builders, however, generate a majority of their revenue from recurring AUM‐based fees as

opposed to commissions, the only segment to do so. For Traditional OSJs, 74% of their advisor’s

revenue is commissions‐based. Conversely, Business Builders foster advisors with 61% fee‐based

revenue stream.

Revenue Growth: Fee‐based revenue streams have greatly benefitted Business Builders revenues.

Traditional and Facilitator OSJs indicated a 12% 3‐year growth rate, while the Business Builder model

indicated a 32% 3‐year growth rate.

Assets and Revenue per Advisor: Managed assets and revenue per advisor grows progressively from

Traditional, Facilitator, and Business Builder OSJs. The average AUM per advisor is $12M, $23M, and

$38M for each, respectively. Average annual revenue per advisor for Business Builders is $279k

compared to $199k for Facilitator and $118k for Traditional OSJs.

Given the current regulatory environment, we anticipate the shift to fee‐based business to continue and,

while many OSJs are helping advisors further embrace a fee‐based model, Business Builders are perhaps

the most successful in recruiting efforts driven by offering a suite of services and support.

STRATEGIES THAT DRIVE PERFORMANCE

Four themes consistently emerged that supported the differentiation and relative performance of each OSJ model. Within each of the themes there was variability in top performers but, in aggregate, Business Builders consistently had top honors in all 4 themes: Leadership and Staffing, Technology Infrastructure, Value‐driven Service Offering and Dedicated marketing support.

Leadership and Staffing: Principals at OSJ offices often act in an advisor capacity, managing a book of

business in addition to their OSJ practice. For Traditional OSJs and Facilitators, this can be 80% to 88% of

the principals. Business Builders have far fewer principal‐advisors (43% of total principals); meaning

there is more dedicated leadership developing the OSJ business.

Additionally, in regard to staff support, Business Builders employ more staff members per advisor than

do Facilitators and Traditional OSJs. In some cases, OSJs provide training to advisor assistants or run

advisor staff through their payroll so advisors do not have to handle these tasks. Flexible arrangements

in staff management can be attractive to advisors who wish to concentrate as much time as possible on

client‐facing activities as opposed to managing payroll.

Technology Infrastructure: Concerning technology, Facilitators indicated that technology is one of their

top three challenges, while Business Builders ranked as one of their top successes. Not coincidentally,

Business Builders appear to perceive technology as less challenging than the other models. In many

cases, Business Builders constructed their entity from the ground up and technology was a key

consideration from the start.

Business Builders appear to be more involved in technology sourcing compared to other segments, 71%

provided reliable infrastructure technology. This can be a big attraction to advisors. It is not so much the

purchase cost but the abbreviated learning curve and the comfort in knowing the OSJ can provide the

setup and support without having to deal directly with the BD or do so on their own. In particular, close

to half of Business Builders provide a customer relationship management (CRM) system to advisors they

supervise, thus alleviating a significant pain point for many independent advisors.



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Value‐Driven Service Offerings: OSJs offer a wide range of services to assist advisors such as onboarding,

technology training, practice management, and back‐office support. Dedicated resources at the OSJ level

can be a key enabler that helps advisors grow their practice. Book management is a prime example; all

Business Builders indicate that they work with advisors to manage their book of business while only 30%

of Traditional OSJs indicate the same.

Additionally, many OSJs are helping advisors further embrace fee‐based management. The number of

options can be daunting for advisors, and OSJs can play a critical role in providing advisors access to and

assistance with packaged fee‐based models, supporting technology and investment specialists that can

help advisors successfully transition.

Succession planning is also a service that stands out. Traditional OSJs appear to feel less successful in the

area of succession planning. Indeed, multiple interviews with traditional OSJs indicate that many of the

advisors have no succession plan. In contrast, succession planning underscores part of the value

proposition for Business Builders.

Dedicated Marketing Support: Marketing support is another core area where Traditional OSJs seemingly

are less likely to offer services and support than are Facilitators and Business Builders. Business Builders

in particular appear more apt to have dedicated marketing specialists, which likely contributes to higher

revenue production and revenue growth. Additionally, of 5 surveyed marketing activities (campaign

management, social media, specialists, design services and event planning), 4 of the 5 services are

offered by 71% or more Business Builders.

WIDENING VALUE PROPOS IT IONS EFFECT THE ENT IRE WEALTH MANAGEMENT CHAIN

The wealth management advisory chain continues to evolve and in part, diverge. While the emergence

of fully scaled, low service solutions is growing, many independent advisors and their service providers

are focused on delivering services that widen value proposition and provide a deeper level of client

engagement. For OSJs choosing these service‐oriented models, there are quantifiable positive impacts:

Higher revenues driven by a shift to recurring fee‐based business

Improved recruiting and advisor retention supported by transition and business

development assistance for advisors

Competitive positioning and scalable solutions for BDs

For OSJs looking to evolve to the Facilitator or Business Builder model, the suite of offerings can demand high capital requirements; but the payoff can be seen in the higher revenue streams and better recruitment positioning. BDs benefit, too, by leveraging the OSJ to create scalable strategies and increasing their attractiveness to advisors. The most direct beneficiary is the advisor who will have a wider range of options tailored to their needs.



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INTRODUCTION

Financial advisors are continually evolving. Today’s advisor seeks to provide a holistic experience to

investors through comprehensive financial planning and managed portfolios to better identify and meet

investors’ goals, all underpinned by technology. This evolution is also evident among advisors with

independent and insurance‐affiliated BDs, spurred by industry consolidation and the breakaway

movement of advisors from captive firms to independent channels.

This shift also affects the role played by OSJs that oversee advisors. AssetMark commissioned Aite Group

to undertake a study looking at the OSJ landscape and the role OSJs play in advisors’ success. The study

consisted of personal interviews that focused on participants’ business models, value proposition and

services offered to understand how OSJs are responding to industry trends and advisor demands.

METHODOLOGY

Throughout the course of Q3 2015, Aite Group conducted personal interviews with 25 principals

responsible for managing an OSJ branch. The principals, all affiliated with independent and insurance‐

affiliated BDs, represent 340 years in collective experience overseeing an OSJ. The OSJs that participated

comprise 1,800 advisors spread across 920 branch offices, managing close to $40 billion in client assets.

The goal of the research was to assess the state of services OSJs offer their advisors by analyzing

emerging business models and methods employed by OSJs. To better capture the essence of each OSJ’s

business model and structure, Aite Group arranged and conducted personal interviews with OSJ

principals. Personal interviews were conducted precisely to help capture qualitative insights into not only

the “what” but also the “how” of emerging models. Participants responded to a series of questions

related to their business model, relationship and support provided by their BD, services and technology

available to advisors, relative areas of strengths and weaknesses, and high‐level practice metrics.

Additionally, Aite Group conducted annual online surveys from 2012 to 2014 among 1,229 financial advisors across multiple BD channels as well as registered investment advisors (RIAs) regarding attributes of their practices, operational and technology setups, product usage, revenue generation, etc. This paper is supplemented with data from those surveys.



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CURRENT LANDSCAPE AND INDUSTRY TRENDS

Firms in the global wealth management industry are increasingly confronted with an operating

environment that is more complex and demands more resources to remain competitive. The evolution

of advisors and their service providers continues against a backdrop of regulatory uncertainty,

competition from traditional and emerging players, and the rapid pace of technology change.

Additionally, the industry is facing increased scrutiny from the public and government calling for greater

fee transparency and a uniform fiduciary standard, all of which will likely be manifest through more

regulation.

OSJs are not immune to the impact of key trends that are reshaping the wealth management industry,

and they must respond. Additionally, OSJs are faced with a specific set of trends that affect their

business: industry consolidation, increasing supervisory responsibilities, advisor recruiting and

transitioning, growth of fee‐based management and the emergence of value‐driven advisor practices.

Figure 1 highlights key industry trends affecting OSJs.

Figure 1: Industry Trends Affecting OSJs

Source: Aite Group

INDUSTRY CONSOL IDAT ION

The US wealth management industry continues to be in consolidation mode, driven by the need to build

scale into operations to generate more revenue without a commensurate increase in expenses. The

number of FINRA‐registered brokerage firms has declined by approximately 25% since 2002,1 and as

acquisitions occur and small brokerage firms withdraw, the trend should only continue (Figure 2).

1. The National Association of Securities Dealers (NASD) was reorganized in 2007 and became part of theFinancial Industry Regulatory Authority (FINRA).

Industry consolidation

Growth of fee‐based

management

Increasing supervisory

responsibilities

Advisor recruiting and transitioning

Emergence of the value‐

driven practice



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Consolidation is creating an environment in which fewer, larger firms increasingly control a greater share

of client assets. As BDs increase in size, the ability for the home office to know every advisor by name

and provide that personalized service becomes more difficult. Indeed, home‐office operations often

consolidate because of mergers and acquisitions. This environment presents opportunities for OSJs to

play a more critical role in advisors’ success by acting as a conduit between the BD and advisors to

extend the BDs services, technology and support on a more personalized and local level. Progressive

OSJs are also building a sustainable business focused on extending additional services and support, and

they are increasingly recruiting advisors directly to their OSJ.

Figure 2: Number of US Brokerage Firms

Source: FINRA

SUPERV I S ION

Increased supervisory requirements, stemming from the changing regulatory environment over past

years is an ever‐present and growing concern for firms and their advisors alike. Many independent and

insurance‐affiliated BDs leverage their network of OSJs to scale supervisory responsibilities. This allows

the sponsoring broker to shift some duties to the field, while fostering a personal relationship with the

advisor. Given their core function, OSJs may be in a unique position to help their advisors adjust business

practices to meet these new standards.

ADV I SOR RECRU IT ING AND TRANS I T ION ING

Competition for advisors among independent and insurance‐affiliated BDs is fierce. Historically, BDs in

these channels have competed for advisors based on payout ratio—payouts tend to be higher here than

5,392 5,272 5,191 5,111 5,029 5,005 4,8954,720 4,578 4,456

4,289 4,146 4,105

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-24%



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in captive firms because advisors are invariably responsible for sourcing their own infrastructure (office,

equipment, health insurance, staff, etc.).

The largest captive firms have fewer advisors in 2015 than in 2007, or shortly before the financial crisis

(Figure 3). Successful advisors coming from captive BDs are seeking a plug‐and‐play environment in

which they can quickly transition without having to set up their own infrastructure from scratch. These

advisors do not necessarily need a boost to their performance through practice management; rather,

they need the operational and technology setup handled for them. The instances of successful advisors

moving from captive channels to independence will likely increase over the next few years as advisor

retention packages expire, or “golden handcuffs” come off among advisors with captive BDs.

A group of advisors at captive BDs also transition to the independent channel because they are not able

to meet production quotas. Underperforming advisors are often cast aside by their captive BDs as part of

annual pruning of low‐producing advisors. These advisors are generally not entrepreneurs and need

support to boost their productivity and efficiency. These advisors can benefit most from the coaching

and support offered by progressive OSJs.

Figure 3: Financial Advisors Affiliated With Wirehouses

Source: Company reports, Aite Group

OSJs are in a position to deliver more personalized services and attention to advisors than are BDs’ home

offices, which are increasingly serving more advisors. Many OSJs are emerging to augment recruiting

done at the BD level by recruiting advisors on their own and providing the infrastructure and support to

better assist advisors in transition. With the number of advisors poised to decline in coming years as

many enter retirement, recruiting will become more competitive. New service models built on a solid

value proposition will therefore become even more important in recruiting advisors. The result is an

emerging environment in which the OSJ provides the hands‐on, local support while also leveraging the

resources and scale of a large BD.

63,871 62,514

55,186 56,083 57,187 55,666 54,189 54,295

2007 2008 2009 2010 2011 2012 2013 2014

-15%



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GROWTH I N FEE ‐BASED MANAGEMENT

The wealth management industry is witnessing a shift away from one‐off product sales and toward

managed portfolios that generate recurring fees based on client asset levels. A managed portfolio is

more conducive to helping clients achieve their goals, which has been borne out of the financial planning

movement. The shift to fee‐based management is occurring across the industry; the percentage of client

assets in fee‐based programs was approximately 37% at the end of 2014, up from about 30% in 2012

(Figure 4).

Advisors with independent and insurance‐affiliated BDs are no exception to this trend, but for many

advisors in these channels who historically have mainly generated commissions from investment and

insurance products, gaining comfort levels with the myriad fee‐based products available has been

daunting. Still, advisors in these channels indicate that fee‐based management is becoming more and

more important to their bottom line; revenue from recurring AUM‐based fees increased among advisors

in these channels from 2012 to 2014 (Figure 5).

Many OSJs are helping advisors further embrace fee‐based management. The number of options can be

intimidating for advisors, and OSJs can play a critical role in promoting fee‐based products by providing

advisors access to and assistance with packaged fee‐based models and supporting technology as well as

investment specialists who can help advisors take their practice to another level. Many advisors struggle

with the transition from product sales to fee‐based management because they are concerned that they

may lose clients or are unsure how to transition their existing client base without disrupting existing

revenue streams. Alignment with the right OSJ can help advisors with little experience providing fee‐

based management an opportunity to become acclimated more quickly, increase revenue growth, and

provide additional services, such as financial planning, that mitigate short‐term revenue loss during a

transition.

Figure 4: Estimated Percentage of Client Assets in Fee‐based Management Programs

Source: Company reports, Aite Group

$4,139 $4,424 $5,084

$6,191 $7,075

2010 2011 2012 2013 2014

Estimated, Fee-Based Client Assets as Percent of Total Assets2010 - 2014 ($ billions)

30.3% 32.4% 33.5% 35.6% 37.1%



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Figure 5: Percentage of Revenue Derived From Recurring AUM‐Based Fees by Advisors with Independent and Insurance‐Affiliated Broker‐Dealers

Source: Aite Group survey of 1,229 financial advisors, Q1 2012 to Q2 2014

THE EMERGENCE OF THE VALUE ‐DR IVEN PRACT ICE

The manner in which financial advice is provided has slowly changed over the years. The days of advisors

flipping through phone books and cold‐calling prospects with a pitch to buy a stock or a bond are gone.

In its place, many advisors have evolved to offer a holistic, goals‐based planning experience centered on

financial planning, tax and estate planning, and leveraging institutional‐quality portfolio models to

provide clients with an experience once reserved for the ultra‐wealthy. The shift to fee‐based

management has created more repeatable revenue streams, which in turn create more sustainable

value‐driven practices. Succession planning has become top of mind not only due to the aging advisor

force but also because advisors who have created value‐driven practices want to be able to monetize

their business when they decide to exit.

OSJs are well‐positioned to help advisors create a value‐driven practice or help those who do have a

value‐driven practice plan for succession. Many OSJs are building a sustainable business of their own

centered on providing the infrastructure, services and support to other advisor practices. Additionally,

many OSJs are building advisor succession planning directly into their core business and use the ready‐

made succession plan as part of their value proposition when recruiting advisors.

19%

28%

2012

2014



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UNDERSTANDING THE OSJ MODEL

PART IC IPANT OVERVIEW

The study involved interviewing 25 principals of OSJs with independent and insurance‐affiliated BDs.

Respondents represent a diverse group of OSJs in terms of business models, value propositions and

services offered. OSJs range in size, from small OSJs with a handful of advisors to those that oversee

more than 200 advisors, to represent a dynamic cross‐section of OSJs.

OSJ branches that participated have been in existence for an average of 20 years, while the principals

responsible for overseeing the OSJ have an average tenure of 13.5 years in that role. Participants oversee

73 advisors on average spread across 37 branch locations, which indicates that there are roughly two

advisors per branch. The dynamic of having two advisors per branch is very different from the large

complexes staffed with 50 to 100 advisors in the wirehouse channel. It is common for advisors in small

branches to operate in an isolated fashion, unable to walk down the hallway and bounce ideas off

multiple colleagues. The isolated nature of many branch offices among independent and insurance‐

affiliated BDs necessitates greater involvement by the OSJ, which can promote peer networking through

hosting virtual and in‐person events, webinars and mentoring programs to build a culture among

advisors scattered about in small branches.

The majority of advisors overseen by participating OSJs handle between 100 and 500 clients, with an

average of approximately 250 clients. This tends to be in line with the overall wealth management

industry. From a production standpoint, advisors overseen by participating OSJs produce $188,000 in

average revenue annually, which is on par with average advisor production among the top 80

independent and insurance‐affiliated BDs. Recurring AUM‐based fees constitute 45% of revenue for OSJs

interviewed; in contrast, a 2014 Aite Group survey of 80 advisors with independent or insurance‐

affiliated BDs revealed that advisors generate less than 30% of their revenue from fee‐based

management. Table A provides a descriptive snapshot of the OSJs that participated in this study.

Table A: Participant Overview

Participant Overview

Experience

Average age of OSJ branch 20.1 years

Average principal tenure 13.6 years

Footprint

Average number of branch offices 37

Average number of advisors supervised 73

Average number of staff, main OSJ branch 7.6

Clients per advisor Fewer than 100 8% 100 to 249 52% 250 to 499 32% More than 500 8%

Production

Average revenue per OSJ $13.5 million



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Participant Overview

Average revenue per advisor $188,000

Average annual revenue growth, prior 3 years

14%

Revenue sourcesCommissions from investments/ variable annuities

40%

Commissions from fixed insurance 13% Recurring AUM‐based fee 45% Other 2%

Average client assets per advisor $23.8 million

Average client assets per OSJ $1.6 billion

Average advisor payout rangeLow 59 High 85

Fee‐based management

Average fee‐based assets as a percentage of total client assets

47%

Fee‐based business arrangementCorporate RIA 60%Independent RIA 16%Combination 24%

Average client charge (basis points)Low 69High 193

Source: Aite Group interviews with 25 OSJ principals, Q3 2015

SEGMENAT ION

The evolution of advisors raises the ante for OSJs that hope to attract and retain the most productive

advisors, as choices for advisors in terms of affiliation options, branding, product availability, practice

management and technology services have never been greater. With these factors in mind, OSJs were

categorized into one of three segments based on the following attributes as well as qualitative insights

gained from the personal interviews:

Affiliation options

Branding

Recruiting approach

Compensation

Services provided

Standardization

Technology

The following section contains a general description of each OSJ segment based on the above criteria.

Figure 6 shows the segmentation of participants in each category.



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TRAD IT IONAL OS J S

These OSJs oversee approximately 600 advisors administering over $5 billion in client assets. While these

OSJs may provide some services beyond supervision, the services are usually an extension of what the

underlying BD already offers. The overwhelming majority of advisors reporting to a traditional OSJ are

contractors and hang their own shingle. The OSJ typically provides freedom to advisors to operate how

they desire and rarely provides technology resources directly to advisors. Traditional OSJs typically have

not executed a business plan to grow their OSJ business through the provisioning of services and

support.

FAC I L I TATORS

Facilitators supervise over 800 advisors managing close to $19 billion in client assets. These OSJs have

taken the Traditional OSJ model a step further by offering services such as practice management support

or marketing specialists. Facilitators strive to provide support services designed to promote greater

efficiency and revenue growth among the advisors they supervise and push for adoption of these

services. Some extend the services provided by the underlying BD and complement those with their own

service offerings. While this segment offers complementary support, the support and services are not

part of a formal business designed to stand on its own. Most principals also must balance a management

role with managing their own book of business.

BUS INESS BU I LDERS

Business Builders supervise approximately 400 advisors managing close to $15 billion in client assets.

These OSJs are engaged in building a business focused on providing services and support to other

advisors, either on a turnkey basis or through customized services. Services generally focus on practice

management, marketing support, technology and associated training, and other services that help

advisors to more easily transition and maintain focus on client‐facing activities as opposed to configuring

the infrastructure on their own. There are a few different flavors of Business Builders. Some are focused

on providing a la carte outsourced services, allowing the OSJ to monetize their offerings. Others are

building more of a wirehouse‐light model that provides the plug‐and‐play capabilities of a captive BD

complete with workflows, technology, and investment models while still allowing advisors an

opportunity to run their practices more independently than could be achieved at a captive BD. A final

group is taking the approach of a mini aggregator, acquiring practices and folding the businesses into

their existing ensembles. Business Builders have a vision and an executable business plan to create a

sustainable, transferrable business.

A more detailed explanation of how OSJs in each segment compare across key attributes appears in

Table B.



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Figure 6: OSJ Segmentation


Table B: Segment Descriptions – Qualitative

Segment Traditional OSJ Facilitator Business Builder Advisor affiliation options

Vast majority of advisors are contractors

Vast majority of advisors are contractors

A mix of employees, partners, and contractors

Advisor branding Most often, advisors use their own brand

Advisors tend to have a choice between hanging their own shingle or using the OSJ’s brand

A distributed mix of advisors using the OSJ’s brand and those using their own brands

Recruiting approach

Mainly focused on quantity; in many instances advisors are assigned to the OSJ by the broker‐dealer

A blend between quantity and quality; more selective than traditional OSJs

Very selective in who they choose to onboard; fitting in with current culture paramount

Advisor compensation (payout)

Payout amount tends to be on the higher end of the range

Payout amount tends to be on the higher end of the payout range

Varies, but payout amount tends to be in the middle to lower end of the range

Services provided Beyond regulatory and supervision, mainly limited to what the broker‐dealer offers

Tend to extend some of the services offered by the broker‐dealer to better support advisors

Services mainly offered by the OSJ directly; in some cases involves an extension of services provided by the broker‐dealer; greater emphasis on building a common workflow

Advisor standardization

Little involvement by OSJ in terms of standardizing how advisors conduct business

Little involvement by OSJ in terms of standardizing how advisors conduct business

Many attempting to usher in more standardization in how advisors conduct business, including approaches to fee‐based asset management

Technology Seldom provide technology to advisors and mainly rely on what the BD makes available, leaving advisors to fill the gaps themselves

Mainly rely on what the BD provides; may supplement advisors by providing some technology

Generally take the onus off the advisor by combining technology from the BD with technology they provide to advisors to enable advisors to concentrate on production

Source: Aite Group

Traditional OSJ40%

Facilitator32%

Business Builder28%



17

STRENGTHS AND WEAKNESSES OF EACH MODEL

TRAD IT IONAL OS J S

Strengths: The biggest strength of the Traditional OSJ model is that it is tried and true. There is also not a

lot of investment needed in infrastructure and staffing to support this model. Traditional OSJs show solid

growth revenue. Many are happy with their current situation and do not aspire to build a formal

business around their OSJ activities, as most also manage a book of business.

Challenges: Advisors with Traditional OSJs tend to be lower producers than those in other segments.

Traditional OSJs tend to struggle with recruiting, something that will only be exacerbated as new OSJ

models emerge. The struggle with recruiting is likely correlated with the lack of services, technology and

support offered. Even those that do offer additional services beyond supervision, cite challenges in

getting advisors to adopt practice management programs and technology. Most traditional OSJs will

struggle to evolve into Facilitators or Business Builders, as they are often hampered by supervising some

advisors who would not fit well in other models. Many Traditional OSJs are stymied by a lack of flexibility

to embrace emerging OSJ models. These factors make it difficult for OSJs to build an enterprise business

that creates sustainable, transferable value.

FAC I L I TATORS

Strengths: Advisors affiliated with Facilitators tend to be higher‐producing advisors and show a greater

commitment to fee‐based business than do advisors with Traditional OSJs. Many Facilitators offer

additional services, or at a minimum try to bridge the gap between the services offered by the BD and

advisor utilization. Overall, Facilitators seem to do a good job with service provisioning.

Challenges: Facilitators tend to find technology challenging, which is likely because they do not provide

the technology directly but tend to be the first line of defense for advisor technology issues. Few

principals of Facilitators are nonproducing managers, meaning that their entire focus is not on growing a

sustainable business based on serving other financial advisors. Facilitators may find it difficult to

transition to Business Builders for many of the same reasons as Traditional OSJs but, based on their

current model, would be better positioned than Traditional OSJs to make that leap.

BUS INESS BU I LDERS

Strengths: Business Builders tend to have higher‐producing advisors who show the greatest commitment

to fee‐based business. Business Builders also are able to articulate a vision along with an executable

business plan; this is positively impacted by the greater presence of dedicated managers who do not also

manage client assets. The vision tends to revolve around thoughtfully building a scalable infrastructure

that promotes greater advisor productivity while also allowing OSJs to build a sustainable business.

Leadership is critical in building a business and in successfully influencing advisors under their purview.

Business Builders feel they have been successful in recruiting advisors and do not see this as particularly

challenging. The breadth and depth of services, technology, leadership and support offered undoubtedly

aid in their recruiting efforts.

Challenges: Business Builders require the initial investment to build an infrastructure and to set up their

practice—investments that do not necessarily pay off quickly. In addition, there is no guarantee that if

they build it, advisors will come. Business Builders need to thoughtfully offer services and technology for



18

which there is demand. While Business Builders report being successful in recruiting, some are

admittedly too selective and wonder if they have hindered their initial growth by not bringing on

advisors who they think may not be a good cultural fit. Additionally, some BDs do not permit non‐

traditional OSJ models, which may hinder OSJs from adapting the Business Builders’ model.

The time has never been better for advisors to explore independent channels or to seek a new home.

New OSJ models are emerging to support the evolution of financial advisors. This makes it incumbent on

BDs to further embrace new models, which can only benefit them in the long term by making their firms

more attractive to prospective advisors.



19

THE EVOLUTION OF THE OSJ BUSINESS MODEL

EMERGING SERV ICE MODELS

The evolution of OSJ business models is steeped in the depth and breadth of services offered. The shape

and delivery of services varies by OSJ, and it is precisely these nuanced characteristics that contribute to

the overall value proposition offered by OSJs. The current landscape is ripe for innovation in OSJ business

models because of a confluence of events, including the continued movement of advisors from captive

channels to independent channels due to a desire for independence, availability of technology that is

competitive with technology within large captive firms, and continued consolidation within the

independent and insurer‐affiliated BD space. Figure 7 illustrates the emergence of new OSJ service

models.

Figure 7: Emerging Service Models

Source: Aite Group

In the Traditional OSJ model, the BD acts as a hub for OSJs and advisor practices alike in terms of

providing services, technology, and support. OSJs provide supervisory oversight to advisors; beyond that,

in many cases the advisor is on his/her own.

Facilitators also operate under similar premises as Traditional OSJs, with the exception being that the OSJ

may step in and take an active role in extending services offered by the BD. In many cases, the OSJ will

provide the first line of service or will facilitate advisors’ support requests around select non‐supervisory

services with the home office. Facilitators generally extend the services and support provided by BDs,

offering that personal touch.

On the other hand, Business Builders have built an infrastructure and have a business strategy centered

on providing services to other advisors. The OSJ serves as a conduit to the home office, thus ensuring a

higher level of personal service and reducing or in some cases eliminating the need for advisors to go



20

directly to the home office. Business Builders not only extend services offered by the BD but also most

often add their own services and support layer that helps differentiate their OSJ businesses from

traditional OSJs.

PERFORMANCE METRICS

The type of services and support offered by advisors’ BDs and OSJs impacts their relative performance in

terms of generating revenue and growing client assets. An emerging and critical role played by OSJs

involves bridging the gap between services offered by the underlying BD and utilization of those services

by advisors. The following section hones in on performance metrics of advisors affiliated with the

different OSJ models.

REVENUE SOURCES

Financial advisors generate revenue mainly through recurring AUM‐based fees or through commissions

on product sales (from investment and insurance products). Advisors may also generate revenue from

standalone services, such as financial planning or retirement plan consulting, although often advisors

bundle the charges for these services in with investment fees.

Business Builders stand out as the only OSJ segment in which advisors earn a higher percentage of

revenue from recurring AUM‐based fees than from commissions. On the other end of the spectrum,

advisors affiliated with traditional OSJs generate the majority of their revenue through commissions

from product sales (Figure 8).

Figure 8: Revenue Sources


59%

39%

30%

15%

15%

9%

23%

45%

61%

3%

2%

1%

Traditional OSJ

Facilitator

Business Builder

Commissions from investments Commissions from insurance

Recurring AUM-based fees Other



21

REVENUE GROWTH

Recurring AUM‐based fees represent a steady, repeatable revenue stream, as opposed to commission‐

based product sales. The benefit of repeatable revenue streams is attractive to financial advisors and is

one of the drivers behind the movement toward fee‐based advisory.

Traditional OSJs and Facilitators report average annual revenue growth of 12% over the last three years;

in contrast, Business Builders were able to grow annual revenue at a 32% clip over the same period

(Figure 9). While AUM‐based fees likely are not solely responsible for the growth rates experienced by

Business Builders, they likely have a positive impact.

Figure 9: Revenue Growth


ADV I SOR PAYOUT RANGE

The payout range for financial advisors operating in independent or insurer‐affiliated BD channels varies

greatly. Typically, payout is a function of production levels (higher‐producing advisors garner higher

payout rates than do those with lower production) as well as the services and setup offered by the OSJ.

This is also true of the OSJs that participated in this study, which boast a variety of affiliation options and

support various setups. Invariably, there is a tradeoff between payout rate and services offered. OSJs

that wrap services and support that go beyond pure supervision (examples include paying for office

space, providing technology or having in‐house specialists to assist advisors) into their business model

tend to provide a lower payout than those that simply provide supervision or other traditional services,

like account approval. In the latter case, advisors are often on their own in sourcing their infrastructure,

technology and marketing support.

On average, OSJs classified as Business Builders show a tighter range of advisor payout rates (Figure 10).

The lower payout rate among business builders is indicative of the structure and services they offer. The

average payout on the high end for Business Builders (77%) is lower than the high range for Traditional

OSJs and Facilitators and lower than the 80% to 90% payout rates that are common in the independent

and insurer‐affiliated brokerage segments. Undoubtedly, Business Builders are offering lower payouts on

12%

12%

32%

Traditional OSJ

Facilitator

Business Builder



22

average precisely to support the services offered, which will help advisors grow revenue. Few firms are

engaged in a strictly outsourced service model in which advisors pay directly for a la carte services. Many

respondents indicate that they are trying to build a dual model through which new advisors can choose

to pay explicitly for some services while taking others in a bundle in exchange for a lower payout.

The average payout on the low end for Traditional OSJs and Facilitators is primarily indicative of the

presence of junior advisors who are new to the business. The presence of junior advisors in practices is

not standardized and varies by practice. This variability is indicative of fragmentation and a lack of

structure and guidance by OSJs, thereby forcing practice managers to figure out the optimal

configuration for themselves.

Figure 10: Advisor Payout


CL I ENT ASSETS PER ADV I SOR

Advisors affiliated with OSJs classified as Business Builders appear to manage a larger book of business

on average than advisors affiliated with Traditional OSJs and Facilitators; Facilitators appear to outpace

advisors with Traditional OSJs as well (Figure 11). It is reasonable to infer that OSJs thoughtfully offering

additional services and building an infrastructure to streamline business operations either attract

financial advisors with larger books of business or help existing advisors grow their practices.



23

Figure 11: Client Assets per Advisor, 2014 ($M)


FEE ‐BASED ASSETS AS A PERCENTAGE OF TOTAL CL I ENT ASSETS

Not surprisingly, fee‐based assets constitute the majority of client assets within Business Builders; this

percentage declines through the progression from Facilitator to Traditional OSJ Figure 12). This is likely

the result of Business Builders’ and, to a lesser extent, Facilitators’ relatively greater structure around

fee‐based management. Higher AUM per advisor combined with a greater propensity to engage in fee‐

based business drives higher revenue production.

Figure 12: Fee‐Based Assets as a Percentage of Total Client Assets, 2014


ADV I SOR PRODUCT IV I TY

Indeed, advisors affiliated with Business Builders realize over twice the revenue of advisors with

Traditional OSJs (Figure 13). Services and infrastructure play a big role in advancing advisor productivity

as well as attracting advisors from captive BD with large books of business. In particular, multiple

principals with Business Builders indicate that they seek to construct a business that will allow advisors

to more easily migrate from captive channels by building a plug‐and‐play environment. This environment

$12.1

$23.0

$38.3

Traditional OSJ

Facilitator

Business Builder

21%

44%

60%

Traditional OSJ

Facilitator

Business Builder



24

requires bundling workflows, technology, practice management and marketing services into a compelling

offer to attract advisors who seek independence yet do not want to handle every nuanced detail

necessary to start an independent practice from the ground up.

Figure 13: Average Revenue per Advisor, 2014 ($K)


$119

$199

$280

Traditional OSJ

Facilitator

Business Builder



25

DRIVERS OF PERFORMANCE

To understand the relative performance of each model, various aspects of OSJs’ businesses were viewed

against the backdrop of services offered as well as their unique visions for their businesses. Analysis

reveals models’ differences in areas of self‐identified successes and challenges. Additionally, four key

themes emerged that differentiate among models: leadership, technology, services and marketing

support.

AREAS OF SUCCESSES AND CHALLENGES

Traditional OSJs appear to feel less successful in the area of succession planning than do Facilitators and

Business Builders (Figure 14). Indeed, multiple interviews with traditional OSJs indicate that many of the

advisors have no succession plan. In contrast, succession planning underscored part of the value

proposition for Business Builders.

Facilitators and Business Builders also feel more successful in recruiting than do Traditional OSJs. This is

likely attributable to their ability to offer prospective advisors more options in terms of services and

support. Some Business Builders gave themselves lower ratings not because they were unable to recruit

quality advisors but perhaps because they felt that they were too selective at times, which hindered

growth.

With regard to technology, Facilitators appear to sense a lower level of success in this area than do

Business Builders. This is likely because most Facilitators aspire to offer leading technology to advisors

but realize they are not quite there yet. Traditional OSJs likely have lower expectations than do

Facilitators and Business Builders, as advisors carry more of the technology burden in this segment than

they do in the other two segments.

Figure 14: OSJs’ Relative Success in Key Areas


5.0

4.4

7.9

7.7

8.5

7.4

7.6

7.1

7.5

8.1

8.5

6.0

7.6

8.6

8.1

8.0

9.0

8.1

SuccessionPlanning

Recruiting

Revenue Growth

Scalability

Regulatorycompliance

Technology

On a scale of 1 to 10 with 1 representing not successful and 10 representing extremely successful, how successful are the following

aspects for your OSJ branch?

Traditional OSJ

Facilitator

Business Builder



26

Not coincidentally, Business Builders appear to perceive technology as less challenging than do

Facilitators and Traditional OSJs (Figure 15). As many Business Builders formed their entity from the

ground up, technology was a key consideration from the start. Facilitators in particular see relatively

greater challenges in managing technology, as they are not heavily involved with providing technology to

their advisors directly yet advisors will come to them with technology issues.

Following on that same theme, Business Builders also appear to feel that supervision is less challenging

than do Facilitators and Traditional OSJs. Again, supervision workflows were built into the fabric of many

Business Builders since inception. Business Builders also benefit from having the ability to be more

selective in the advisors they supervise, whereas traditional OSJs and Facilitators often have advisors

assigned to them by the home office.

Figure 15: OSJs’ Relative Challenges in Key Areas


Traditional OSJs tout their reputation, referral network, and personal relationships with advisors—all

important attributes but not tangible ones (Figure 16). Facilitators also stress relationships and local

support, and the support of their BD. In essence, they are truly facilitating the advisor experience in

many ways, one of which is acting as a liaison between the advisors they supervise and their BDs.

Business Builders tend to identify more specific areas where they can help advisors, including marketing

support, technology and leadership (as opposed to a good relationship)—a small nuance that indicates

there is structure to the business and an executable business plan as opposed to a nice place to hang

your shingle.

5.4

7.7

4.1

4.9

5.9

5.2

5.1

7.0

5.6

4.6

7.0

6.3

6.0

6.0

4.6

3.6

3.6

3.3

SuccessionPlanning

Recruiting

Revenue Growth

Scalability

Regulatorycompliance

Technology

On a scale of 1 to 10 with 1 representing no challenge and 10 representing a big challenge, how challenging are the following aspects

for your OSJ branch?

Traditional OSJ

Facilitator

Business Builder



27

Figure 16: Self‐Identified Strengths of OSJs


Business Builders in particular appear to be outpacing Facilitators and Traditional OSJs in recruiting

advisors (Figure 17). Many Business Builders also mentioned recruiting as a relative strength. Interviews

with Business Builders left the general impression that quality is more important than quantity in

recruiting. It is critically important to bring in advisors who will fit in with the culture they are building; a

big producer with a clean record is not enough for automatic acceptance.

Figure 17: OSJ’s Net Gain in Advisors as a Result of Recruiting Efforts


5%

13%

41%

Traditional OSJ

Facilitator

Business Builder

New advisors as a percent of total advisors, last three years

30%

30%

20%

20%

20%

Local reputation

Relationship betweenOSJ and advisors

Centers of influence -referral network

Coaching

Operational scale

Traditional OSJs

38%

25%

25%

25%

Local support

Business model

Relationship betweenOSJ and advisors

Strong BD support

Facilitators

43%

29%

29%

29%

29%

29%

29%

Operational scale

Advisor recruiting

Business model

Ease of transitionfor new advisors

Leadership

Marketing

Technology

Business Builders



28

LEADERSHIP AND STAFF ING

Another key theme involves the role of leadership and staffing. Support is only as good as the people

providing it; the lack of solid leadership and/or adequate staffing at the main OSJ branch can be

detrimental to the productivity and morale of the advisors supervised. A well‐respected leader can

influence change through the trust built with advisors, which is critical to keeping advisors engaged and

more efficient.

LEADERSH IP

Leadership is hard to quantify and was not explored directly through interviews with OSJs. More than

one Business Builder identified leadership as a key strength; leadership cannot be overstated. In

conversations with branch managers, a lack of time was consistently cited as a significant challenge.

Most of these branch managers also manage a book of business. Some mentioned the need to bring on

a dedicated business manager to focus solely on growing their OSJ business.

Less than half of principals associated with Business Builders indicate that they manage their own book

of business; in contrast, the vast majority of those affiliated with Traditional OSJs and Facilitators manage

their own client lists (Figure 18). It makes sense that it is difficult to build a thriving business while also

serving clients; hence, for most Traditional OSJs and Facilitators it is more of a side business. While there

is merit to leadership having worked in the trenches and experienced the life of a financial advisor, it is

equally if not more important to have dedicated leadership who can help advisors grow their revenue

and, in the case of Business Builders, lead the growth of the business. For a small OSJ, this might not be

possible initially, but as the business grows, dedicated leadership should be in place. More than one

participant indicates that he or she needs to step away from working with clients to fully focus on

growing the OSJ business, although it can be tough to break that bond with one’s most lucrative and

longstanding clients.

Figure 18: Percentage of OSJ Principals Managing Their Own Book of Business


STAFF ING

Business Builders appear to employ more staff members per advisor than do Facilitators; Facilitators

employ more staff members per advisor than do Traditional OSJs (Figure 19). It is difficult to build a

80%

88%

43%

Traditional OSJ

Facilitator

Business Builder



29

sustainable business without properly trained staff, and the lack of staff can hinder service offerings,

such as providing access to marketing specialists, financial planning specialists and investment

specialists, which in turn can suppress revenue growth. The advisor‐to‐staff ratio will inherently be lower

for those OSJs that are in their infancy (we interviewed a few). The overall strategy of these Business

Builders relies heavily on creating operational scale through workflows and technology, which will allow

them to increase the number of advisors per staff member as they recruit more advisors.

Figure 19: Number of Advisors per Staff Member


TECHNOLOGY

Sources of core technology applications vary greatly among advisor practices, OSJs and BDs in the

independent and insurance‐affiliated BD space (Figure 20).

The BD primarily provides advisor workstations and portfolio management systems. The few

respondents who source their own portfolio management systems do so to support an independent RIA.

Performance reporting is also cited by most as being provided by the BD, although advisors pay for it in

most cases through an affiliation or technology fee.

Advisors associated with Traditional OSJs and Facilitators are primarily responsible for their technology

infrastructure and hardware; advisors with Business Builders are more apt to have their office

equipment provided to them by their OSJ. Handling the basic technology setup, ongoing maintenance

and support can be of great value to advisors, especially those transitioning from a BD where everything

was provided.

Advisors with Traditional OSJs and Facilitators are also more apt to source their financial planning

systems themselves, and few OSJs supply a financial planning system to all the advisors they supervise.

To a somewhat lesser extent, many advisors also are responsible for sourcing their own CRM systems.

Business Builders appear to be more involved in technology sourcing compared to other segments,

bridging the gap between technology the BDs provide and technology the advisors would normally be

required to acquire themselves. This can be a big attraction to advisors. It is not so much the purchase

cost but the abbreviated learning curve and knowing the OSJ can provide the setup and support without

having to deal directly with the BD or do so on their own.

16

9

6

Traditional OSJ

Facilitator

Business Builder



30

Figure 20: Technology Sourcing


Past Aite Group surveys of financial advisors consistently show that CRM and financial planning are two

areas where advisors would dedicate the largest percentage of a hypothetical technology budget

(integration is also mentioned often; Figure 21). While the BD may have integration with a handful of

popular CRM systems, it is difficult to get thousands of advisors to adopt a single system, let alone

Traditional OSJ Business BuilderFacilitator

Portfolio

management /

accounting

Advisor

workstation

Performance

reporting

Financial

planning

CRM

Client portal

Infrastructure

/ hardware

BD Advisors OSJ Combination



31

mandate one. As such, many advisors are dissatisfied with their CRM precisely because they are

responsible for sourcing it themselves.

Figure 21: Areas of Technology Advisors Seek to Improve

Source: Source: Aite Group survey of 402 financial advisors, Q2 2014

SERV ICES

Principals interviewed were asked to indicate whether their OSJ offers a range of services to advisors

they supervise. Facilitators and Business Builders appear to have a greater likelihood of employing

financial planning or other specialists than have Traditional OSJs (Figure 22). Interviews with Business

Builders reveal that many do not have a dedicated financial planning expert because most advisors

already excel in that discipline.

There is also a noticeable disparity in the provisioning of technology training between Traditional OSJs

and the other two segments. Technology is playing a more critical role in wealth management, and the

ability for advisors to successfully transition from a sales‐based role to an investment consultant or

financial planner is incumbent upon their ability to utilize portfolio management and financial planning

applications. Independent and insurance‐affiliated BDs are continually upgrading their advisor‐facing

technology, but adoption and utilization remain low; dedicated training resources at the OSJ level can be

that key enabler that helps advisors grow their practice.

14%

14%

12%

9%

7%

6%

6%

5%

Improving integration among businessapplications

Financial planning

CRM

Improve mobile access

Advisor dashboard

Portfolio construction and analytics

Form pre-filling

Research systems

Please allocate your budget in percentage terms across the applications/capabilities you would like to add or improve



32

Figure 22: Services Provided by OSJs


PRACT ICE MANAGEMENT

Practice management revolves around giving advisors the tools and advice to increase revenue and

profitability. While most OSJs interviewed for this study indicate that they offer some form of practice

management support, the depth and breadth of services differ widely among OSJs (Figure 23).

With the exception of social media training and succession planning, Facilitators and Business Builders

appear more likely to offer practice management support to the advisors they supervise than do

Traditional OSJs. Facilitators and Business Builders also appear more apt to offer staff management. In

some cases, advisor assistants were either trained by the OSJ or run through the OSJ’s payroll so that

advisors did not have to handle tax reporting and payroll. Flexible arrangements in staff management

can be attractive to advisors who wish to concentrate as much time as possible on client‐facing activities

as opposed to managing payroll.

A resounding theme among many participants, particularly Traditional OSJs, centers on the dearth of

advisors leveraging practice management tools and coaching. The most often cited reason for advisors

not leveraging services was attributed to the principals’ reticence to meddle in an experienced advisor’s

business or the notion that experienced advisors do not want any assistance. Book management is a

prime example; all Business Builders indicate that they work with advisors to manage their book of

business while only 30% of Traditional OSJs indicate the same. Prospecting training is another area

where Facilitators and Business Builders appear more active than Traditional OSJs. In essence, many

advisors affiliated with Traditional OSJs are on their own in terms of practice management development.

70%

40%

80%

70%

20%

20%

100%

88%

100%

88%

75%

38%

100%

86%

100%

100%

43%

57%

New advisor onboarding

Technology training

Practice management support

Back-office support

Financial planning specialists

Other specialists

Traditional OSJ

Facilitator

Business Builder



33

Figure 23: Practice Management Services Provided by OSJs


MARKET ING

Marketing support is another core area where Traditional OSJs seemingly are less likely to offer services

and support than are Facilitators and Business Builders (Figure 24). Dedicated local marketing specialists

can be of great value to advisors, who otherwise will use outside contractors. Marketing specialists can

create value beyond pure campaign management or collateral creation; they can also capture best

practices by various advisors and circulate ideas that have proven beneficial to the whole group.

Business Builders in particular appear more apt to have a dedicated marketing specialist than are

Traditional OSJs or Facilitators. Access to marketing specialists likely contributes to higher revenue

production and revenue growth. While BDs are increasingly making digital marketing‐content platforms

available to the field, many advisors cannot make the leap to posting content online or creating

campaigns. Marketing specialists can be valuable resources that aid advisors in their marketing efforts,

enabling advisors to spend more focused time on client‐facing activities.

60%

40%

30%

60%

20%

50%

88%

75%

75%

63%

57%

71%

100%

100%

57%

Social media training

Prospecting training

Book management

Succession planningprograms

Staff management

Traditional OSJ

Facilitator

Business Builder



34

Figure 24: Marketing Services Provided by OSJs


20%

40%

30%

60%

75%

63%

25%

50%

63%

71%

71%

71%

43%

100%

Campaign management

Social media assistance

Marketing specialists

Design services

Event planning

Traditional OSJ

Facilitator

Business Builder



35

CONCLUSION

The financial advisor landscape continues to evolve amid the shift from stock pickers and product

salespeople to holistic wealth providers. This sea change necessitates changes from the BDs and OSJs

that serve them to attract and retain top producers. This study has revealed great variance in how OSJs

run their businesses and highlights the factors that distinguish the Traditional OSJ‐advisor relationship

from emerging models.

New OSJ business models are emerging centered on services, technology, and support that go beyond

pure supervisory oversight. As consolidation takes hold, it becomes more difficult for BDs to provide a

personal touch to advisors. OSJs are stepping in to fill the gap and, as these models proliferate, can

provide benefits to advisors and the BDs that serve them. The following summarizes these emerging

models’ benefits to all stakeholders.

OSJs: OSJs have lots of motivation to attract high‐producing advisors and help lower‐

producing ones improve their productivity, as their revenue for typical OSJ‐related duties is

based on the revenue an advisor generates. Extending beyond traditional services avails

these OSJs an opportunity to build a business around serving other advisors. Through this

they can gain a higher override from advisors while promoting greater advisor productivity,

which also helps their bottom line. Of course, this comes at a cost, as initial and ongoing

investment is needed to build the infrastructure to support the value proposition. Even more

important than capital investment is the necessity to have a vision and the ability to execute

on a feasible business plan.

Advisors: There is no better time in recent history for advisors searching for a new BD than

now. Post‐crisis retention deals are expiring, and options for breaking away have never been

greater. Every practice considering a move has a priority list, and the many flavors of

emerging OSJs will only make the independent and insurance‐affiliated brokerage channels

more appealing. Increasingly, advisors seeking to move will more heavily factor in an OSJ’s

package of services rather than solely those of their chosen BD. OSJs are seeking to attract

advisors based on a value proposition revolving around local culture/support with the

backing of a large BD.

Broker‐dealers: Consolidation is creating large networks of BDs with sales forces ranging into

the thousands. This makes it difficult for many BDs to really know their advisors by name or

make every advisor feel valued. Expanded OSJ service offerings beyond those of Traditional

OSJs can alleviate some of the home‐office effort in terms of advisor support and staffing,

which allows the BD to better scale its business and lower costs. In theory, the firm becomes

more attractive to prospective advisors because of its OSJ’s various affiliation options or the

prospective advisor’s ability to form his or her own OSJ. OSJs effectively become the

recruiting arm for independent and insurance‐affiliated BDs. Independent and insurance‐

affiliated BDs need to have the infrastructure to support progressive OSJs, else risk being at a

disadvantage to competitors.



36

ABOUT ASSETMARK INC.

AssetMark, Inc. is a leading independent provider of innovative investment and consulting solutions serving financial advisors. The firm provides investment, relationship and practice management solutions that advisors use to help clients achieve their investment objectives and life goals. AssetMark, Inc. has a

history of innovation spanning over 20 years. For more information, visit www.assetmark.com and

follow @AssetMark on Twitter.

ABOUT AITE GROUP Aite Group is an independent research and advisory firm focused on business, technology, and

regulatory issues and their impact on the financial services industry. With expertise in banking,

payments, securities & investments, and insurance, Aite Group’s analysts deliver comprehensive,

actionable advice to key market participants in financial services. Headquartered in Boston with a

presence in Chicago, New York, San Francisco, London, and Milan, Aite Group works with its clients as a

partner, advisor, and catalyst, challenging their basic assumptions and ensuring they remain at the

forefront of industry trends.

AUTHOR INFORMATION

Bill Butterfield

+1.617.398.5046

[email protected]

CONTACT For more information on AssetMark, please contact:

Assetmark.com

+1.925.521.2750

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