Are Regulators Forcing You to Become an RIA?

Are Regulators Forcing You to Become an RIA?

Written by: Jason Plucinak

For many advisors, the slow-motion action on the Department of Labor/fiduciary rule has led them to take a serious look at their business models. With regulators moving the industry inexorably toward strict rules on commission-based business, advisors are considering whether turning their practice into a Registered Investment Advisor (RIA) now will keep them ahead of the industry and allow them to retain valuable clients.

The commissioned broker working for a wirehouse has been in decline for more than a decade. Aite Group estimates wirehouses have declined from almost 42 percent of all assets in 2007 to 36 percent this year. Cerulli Associates projects that independent RIAs will rise to 28 percent of the market in 2020.

RIAs do not make commissions on securities’ sales but rather charge a fee for their advice and services.

As important, RIAs are already fiduciaries to their clients and are not regulated by the Financial Industry Regulatory Authority (FINRA) but are by the Securities and Exchange Commission (SEC). And, there’s a level of independence an RIA can experience that is an attraction on its own.

But, it’s no simple decision. The move to become an RIA offers its own options: whether to be a pure RIA, charging clients a flat-fee or a percentage of assets, or to be an RIA hydrid, registered as both an RIA and with a broker-dealer.

Importantly, you have to consider what your clients want and need. The more sophisticated they are, the more likely they are to look closely at how you are compensated (and the more access they have to competitors that include RIAs and robo-services that are growing marketshare on their own).

So, if it’s on your mind, here’s a place to start. What follows are three reasons NOT to change your business model to RIA-only and three reasons TO change to RIA-only:

The case for switching to RIA-only:

1. It’s the future

Some say the handwriting is on the wall: commissioned “salespeople” have no place in managing Americans’ retirement dollars and regulators will never stop until every financial advisor in any capacity is acting as a fiduciary in all scenarios.  If this happens sooner than later, why fight it?

2. Stress Relief/Quality of Life

If you are able to successfully transition your business and clients to a fee-based only relationship, you now have much less pressure to “sell” your clients anything.  You are now getting paid to successfully manage their assets – if you make them money, you make more money. Interests aligned.  Win-win for you and your clients.

3. To save yourself and your practice from the coming legal war

Most commissioned brokers feel that FINRA will “get them” at some point – it’s only a matter of time.  Even though you run a clean practice and do what’s best for your clients, the impending fiduciary standard rules will crack open doors that plaintiff attorneys and regulators want to bust open.  Go now while you still can.

Related: What's an Investor to Do When History Doesn't Repeat Itself?

The case against switching to RIA-only:

1. Business continuity

Transitioning a practice takes a lot of time & effort, requiring you to explain the differences in your compensation to every one of your clients and having them sign off on the change. Are you ready for what could be difficult conversations with your clients about past practices?

2. A cut in pay

Commissioned brokers generally make lump-sum compensation upon every sale to every client. Changing to the RIA model means you will only make a fixed rate fee on the amount of assets you are managing for each client and you’ll generally only collect that small fee once per quarter -  at the most. Transitioning to RIA from a financial aspect generally will take two-to-three years of building your Assets Under Management (AUM) until your total fees equal or exceed what your prior take-home income was.

3. Because no one tells you what to do

If you are already acting in the best interest of your clients at all times, why would anything a regulator tries to enact make you change your business?

No matter your frustration with what seems to be continually increasing regulations, keep your focus on doing what’s best for your clients.

Jason Plucinak has over 14 years of experience as a financial professional in the life insurance, securities, and alternative investment industries. Currently Senior Vice President of Business Development at GWG Holdings, his background includes wholesaling, sales management, and Broker Dealer due diligence. Mr. Plucinak holds his Series 7 and 63 license with Emerson Equity LLC, a FINRA registered broker dealer. Mr. Plucinak earned a Bachelor of Science degree in finance from St. Cloud State University in Minnesota.
GWG Holdings, Inc.
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GWG Holdings, Inc. (Nasdaq:GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and i ... Click for full bio

Here’s Why Bitcoin Won’t Replace Gold So Easily

Here’s Why Bitcoin Won’t Replace Gold So Easily

What a week it was.

First and foremost, I’d like to acknowledge the horrific mass shooting that occurred in Las Vegas, the deadliest in modern American history. On behalf of everyone at U.S. Global Investors, I extend my sincerest and most heartfelt condolences to the victims and their families.

The memory of the shooting was still fresh in people’s minds during last Tuesday’s Hollywood premiere of Blade Runner 2049, which nixed the usual red carpet and other glitz in light of the tragedy. Before the film, producers shared poignant words, saying that in times such as these, the arts are crucial now more than ever.

I had the distinct privilege to attend the premiere. My good friend Frank Giustra, whose production company Thunderbird Entertainment owns a stake in the Blade Runner franchise, was kind enough to invite me along. Despite the somber mood—a pivotal scene in the film even takes place in an irradiated Las Vegas—I thought Blade Runner 2049 was spectacular. Even if you’re not a fan of the original 1982 film, it’s still worth experiencing in theaters. Hans Zimmer and Benjamin Wallfisch’s synth-heavy score is especially haunting.

CNET recently published an interesting piece examining the accuracy of future tech as depicted in the original Blade Runner, from androids to flying cars to off-world travel read the article here.

Still in the Early Innings of Cryptocurrencies

Speaking of the future, I spoke on the topic of the blockchain last week at the Subscriber Investment Summit in Vancouver. My presentation focused on the future of mining—not just of gold and precious metals but also cryptocurrencies.

Believe it or not, there are upwards of 2,100 digital currencies being traded in the world right now, with a combined market cap of nearly $150 billion, according to

Obviously not all of these cryptos will survive. We’re still in the early innings. Last month I compared this exciting new digital world to the earliest days of the dotcom era, and just as there were winners and losers then, so too will there be winners and losers today. Although bitcoin and Ethereum appear to be the frontrunners right now, recall that only 20 years ago AOL and Yahoo! were poised to dominate the internet. How times have changed!

It will be interesting to see which coins emerge as the “Amazon” and “Google” of cryptocurrencies.

For now, Ethereum has some huge backers. The Enterprise Ethereum Alliance (EEA), according to its website, seeks to “learn from and build upon the only smart contract supporting blockchain currently running in real-world production—Ethereum.” The EEA includes several big-name financial and tech firms such as Credit Suisse, Intel, Microsoft and JPMorgan Chase, whose own CEO, Jamie Dimon, knocked cryptos a couple of weeks ago.

To learn more about the blockchain and cryptocurrencies, watch this engaging two-minute video.

Understanding blockchain in two minutes

Will Bitcoin Replace Gold?

Lately I’ve been seeing more and more headlines asking whether cryptos are “killing” gold. Would the gold price be higher today if massive amounts of money weren’t flowing into bitcoin? Both assets, after all, are sometimes favored as safe havens. They’re decentralized and accepted all over the world, 24 hours a day. Transactions are anonymous. Supply is limited.

Have gold and bitcoin peaked for 2017

But I don’t think for a second that cryptocurrencies will ever replace gold, for a number of reasons. For one, cryptos are strictly forms of currency, whereas gold has many other time-tested applications, from jewelry to dentistry to electronics.

Unlike cryptos, gold doesn’t require electricity to trade. This makes it especially useful in situations such as hurricane-ravished Puerto Rico, where 95 percent of people are reportedly still without power. Right now the island’s economy is cash-only. If you have gold jewelry or coins, they can be converted into cash—all without electricity or WiFi.

Finally, gold remains one of the most liquid assets, traded daily in well-established exchanges all around the globe. Every day, some £13.8 billion, or $18 billion, worth of physical gold are traded in London alone, according to the London Bullion Market Association (LBMA). The cryptocurrency market, although expanding rapidly, is not quite there yet.

I will admit, though, that bitcoin is energizing some investors, especially millennials, in ways that gold might have a hard time doing. The proof is all over the internet. You can find a number of TED Talks on bitcoin, cryptocurrencies and the blockchain, but to my knowledge, none is available on gold investing. YouTube is likewise bursting at the seams with videos on cryptos.

Bitcoin is up 350 percent for the year, Ethereum an unbelievable 3,600 percent. Gold, meanwhile, is up around 10 percent. Producers, as measured by the NYSE Arca Gold Miners Index, have gained 11.5 percent in 2017, 23 percent since its 52-week low in December 2016.

Related: Gold and Bitcoin Surge on North Korea Fears

Look Past the Negativity to Find the Good News

The news is filled with negative headlines, and sometimes it’s challenging to stay positive. Take Friday’s jobs report. It showed that the U.S. lost 33,000 jobs in September, the first month in seven years that this happened. A weak report was expected because of Hurricane Irma, but no one could have guessed the losses would be this deep.

The jobs report wasn’t all bad news, however. For one, the decline is very likely temporary. Beyond that, a record 4.88 million Americans who were previously sitting out of the labor force found work last month. This helped the unemployment rate fall to 4.2 percent, a 16-year low.

Have gold and bitcoin peaked for 2017

There’s more that supports a stronger U.S. economy. As I shared with you last week, the Manufacturing ISM Purchasing Managers’ Index (PMI) rose to a 13-year high in September, indicating rapid expansion in the manufacturing industry. Factory orders were up during the month. Auto sales were up. Oil has stayed in the relatively low $50-a-barrel range, which is good for transportation and industrials, especially airlines. Small-cap stocks, as measured by the Russell 2000 Index, continue to climb above their 50-day and 200-day moving averages as excitement over tax reform intensifies.

These are among the reasons why I remain bullish.

One final note: Speaking on tax reform, Warren Buffett told CNBC last week that he’s waiting to sell assets until he knows the plan will go through. “I would feel kind of silly if I realized $1 billion worth of gains and paid $350 million in tax on it if I just waited a few months and would have paid $250 million,” he said.

It’s a fair comment, and I imagine other like-minded, forward-thinking investors, buyers and sellers will also wait to make huge transactions if they can help it. Tax reform isn’t a done deal, but I think it has a much better chance of being signed into law than a health care overhaul.

Frank Holmes
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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm ... Click for full bio