Why I Went Independent?
The difference between an institutional advisor and an independent RIA, and why I chose the latter
Four years ago, I began a journey that reshaped my career. While networking, I met with a seasoned financial advisor, gleaning insights into her success. She was gracious, and we connected effortlessly. To my surprise, she concluded our meeting by asking if I’d consider becoming an advisor, citing my background, experience, and personality as a great fit. Flattered but caught off guard, I politely declined and thanked her for her time.
Now, four years later, I’ve worked at major firms like Edward Jones and independent broker-dealers like LPL, serving as both a corporate and hybrid advisor. Today, I’m embracing full independence as a Registered Investment Advisor (RIA). These experiences have given me a unique perspective on the financial advisory industry.
More importantly, what does this mean for clients working with advisors across these models? In this article, I share my insights, explain why I chose the RIA path, and explore how an advisor’s corporate structure may shape their recommendations and service. From institutional firms to independent broker-dealers to RIAs, each environment influences how advisors operate and prioritize client needs.
Please note: My observations are generalizations. Exceptions exist, and individual advisors may vary in their approach.
Institutional Firms (a.k.a. Wirehouses)
For over 20 years, I worked in the technology sector, knowing little about financial advising. My understanding came from an advisor I worked with in my 20s, initially at UBS and later at Morgan Stanley when he switched firms. Loyal to our relationship, I followed him. Now, I wish I had known what I know today. I would have left and found a new advisor. Here’s why.
Wirehouse advisors, like those at UBS or Morgan Stanley, are often driven to SELL. I call them “Bone Collectors” (read my article on this term). Their incentives focus on gathering assets. The more they collect, the higher their earnings, office prestige, or bonuses. They face quotas for new assets, with lavish trips or job security at stake. This creates two problems.
First, wirehouse advisors have little motivation to tackle complex financial challenges. Once your assets are secured, they’re unlikely to guide you through life events unless it involves adding assets, like a 401(k) rollover or selling commission-based products such as annuities and life insurance. Advisors who go further do so despite the system, but even the best often conform over time.
Second, wirehouses encourage advisors to target wealthy clients, as they’re more “scalable” than everyday people. Many set minimum asset requirements, excluding ordinary folks who need guidance most. While defining a target market is reasonable, this practice shuts out those seeking expertise but lacking substantial wealth.
Independent Broker-Dealers (IBD)
Independent Broker-Dealer (IBD) advisors enjoy more flexibility and autonomy than wirehouse advisors, offering diverse business models. Unlike wirehouse advisors, they’re less driven by asset collection or quotas. However, compliance poses a key limitation in the IBD model.
Compliance is essential. It protects clients from bad actors and advisors from their own missteps. I fully support compliance. Yet, some IBD compliance rules restrict advisors’ ability to serve clients fully. A prime example is the prohibition on “selling away.”
“Selling away” refers to recommending investments not vetted by the brokerage firm. This rule ensures firms verify investments’ legitimacy, which benefits clients. In practice, however, it can be interpreted broadly, preventing advisors from suggesting legitimate, client-appropriate investments outside the firm’s platform, such as selling equity holdings to buy real estate or redeeming bond investments to purchase U.S. Treasuries via www.treasurydirect.gov for higher interest rates. Even if these recommendations suit the client’s needs, they may violate “selling away” rules, limiting advisors’ ability to act in clients’ best interests. If you’re currently working with a wirehouse or IBD advisor, this may also be why your advisor has not brought you any good and appropriate ideas → Compliance is preventing them.
I’m generalizing, and exceptional IBD advisors do exist. Still, compliance restricting what IBD advisors can recommend is real, and clients remain unaware because advisors are not allowed to discuss these limitations.
Another issue is the distinction between Best Interest and Fiduciary standards, which sometimes conflict. Regulatory bodies are still grappling with this complex topic, too intricate to cover fully here. You can read more about these topics here, here, and here. In essence, wirehouse and IBD advisors follow the Best Interest standard, even if they’re a CFP® professional, while independent RIAs adhere to the fiduciary standard. RIAs who are CFP® professionals are held to the fiduciary standards set by the CFP® Board, which is ideal. From a client’s perspective, these two standards significantly impact your advisor’s recommendation.
Registered Investment Advisors (RIA)
This explains why I chose to become a Registered Investment Advisor (RIA). As an RIA owner, I register directly with the SEC or state authorities, depending on my firm’s size. They oversee my operations and can audit me anytime. In many ways, this oversight feels more stringent than the compliance buffers at wirehouses or Independent Broker-Dealers.
Being an RIA grants greater flexibility in communication. Wirehouse and IBD compliance often caters to the lowest common denominator to prevent misconduct, scrutinizing every word. As an RIA, I set my own standard, avoiding restricted terms like “guarantees” or “promises” but freely creating educational content. Expect more articles like this, designed to empower readers to be smarter investors, informed clients, and savvy consumers.
As a CERTIFIED FINANCIAL PLANNER® professional, I uphold a fiduciary duty, defined by the CFP® Board as the Duty of Loyalty, Duty of Care, and Duty to Follow Client Instructions. I prioritize clients’ best interests, even at personal cost. I can make tailored recommendations, avoid pushing asset collection when it’s unnecessary, and craft personalized financial plans, embodying true fiduciary standards and enabling Real Financial Planning.
Going RIA also allows my practice to be fee-only, meaning I earn no commissions and am paid solely by clients, not mutual fund or insurance companies. This minimizes perceived conflicts of interest. While several of my clients have mentioned that they’d rather have me earn the commission than someone else from product sales, removing any doubt in the client advisory conversations and maintaining that level of integrity when making recommendations is essential to a client/advisor relationship. Only RIAs can be fee-only. All others are fee-based.
Lastly, being an RIA allows me to narrow my target audience and communicate as such. Here are some of my foundational truth statements.
I love Jesus and follow Biblical teachings in what I do.
There is always a solution.
We are stewards of what we’ve been given to manage.
When it comes to investing, time and discipline matter most.
Do good. Do right. All others will follow.
Sometimes, financial planning is more art than science. Other times, more science than art. Yet other times, only science and only art. My job is to find the right level at this point in time and adjust and guide my clients into future life phases.
Still Learning
In the startup world, we embraced Rapid Application Development (RAD): build products fast, fail fast, and move to the next idea. This kept us learning, experimenting, and iterating. I’m applying that same mindset now. As a financial planner, I remain a sponge, continuously absorbing knowledge and refining my craft. If you have ideas or suggestions, please get in touch with me at hello at r1t1 dot com.
“Once you stop learning, you start dying.” -Albert Einstein
So here I am, an RIA independent advisor. What’s next? Who knows. But I can assure you that it won’t be boring and it’ll make me a much better advisor for my clients.