New Schwab Advisor Services Report Outlines Considerations for Advisors Evaluating Hybrid Practice Model

More than Half of Advisors in Transition with Schwab Establishing a Hybrid Model

Thursday, February 24, 2011 6:00 am PST



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"Once things like investment approach and mix of investments, desired revenue model, and ideal client profile are in place, an advisor is in a good position to determine the right path to take."

SAN FRANCISCO--(BUSINESS WIRE)--Charles Schwab, a leading provider of custodial, operational and trading support for more than 6,000 independent RIAs, today announced its latest Schwab Market Knowledge Tools® (MKT) report, Understanding the Hybrid Practice – Considerations for Advisors in Transition. The report outlines the considerations advisors face when evaluating a hybrid practice model, conducting a combination of traditional brokerage business and fee-based advisory business.

Specifically, the report focuses on trends driving growth in the hybrid market segment, the strategic considerations of choosing the hybrid practice model, and the economics of being a hybrid advisor. The report also outlines key features of different hybrid practice models – the ‘semi-captive’ hybrid model in which an advisor joins a corporate RIA of an independent broker-dealer (IBD) and the ‘dually registered’ hybrid model in which an advisor starts or joins an independent RIA firm – and how these two models impact a firm’s offering for clients.

“An increasing number of advisors transitioning to independence are selecting a hybrid practice model for their business,” said Nick Georgis, Schwab Advisor Services vice president. “In fact, more than half of the advisors that went independent with Schwab in 2009 and 2010 established a hybrid practice model, primarily for the flexibility to offer a broader set of products and services to clients while maintaining multiple sources of revenue. And we see this trend gaining momentum with the number of transitioning advisors choosing the hybrid model increasing about 10 percent year over year.”

In 2010, Schwab Advisor Services saw 163 advisory teams transition to independence, representing $12.6 billion is assets under management. A growing number of advisors in transition to the fully independent RIA model are coming from the IBD channel as they seek greater flexibility and move a larger portion of their business to an advisory-based model. In fact, Schwab saw a 45 percent increase in the number of teams transitioning to independence from IBD firms in 2010 compared to 2009.

Growth in the Hybrid Model and Key Considerations for Advisors

The Understanding the Hybrid Practice report notes that growth in the dually registered hybrid model is particularly high and adding to the momentum of advisors transitioning to independence. According to Cerulli Associates, from 2004 to 2009, net headcount at dually registered hybrid firms grew at a compound annual growth rate of 14.7 percent, nearly three times that of RIA-only firms.1

During the same period, headcount in nearly all broker-dealer channels experienced flat to negative growth. The report also indicates that this growth is expected to continue for the next several years. Between 2009 and 2014, market share in terms of advisor headcount is expected to increase at firms with dually registered advisors and RIA-only firms at the expense of other channels, such as wirehouses, IBDs and insurance and bank broker dealers. Headcount market share at firms with dually registered advisors is expected to increase from 4.2 percent in 2009 to 7.7 percent in 2014. During the same period, headcount market share at RIA-only firms is expected to climb from 5.9 percent to 10.1 percent. In contrast, other channels are expected to see flat to negative growth in share.2

Overall, the advisors Schwab interviewed for the Understanding the Hybrid Practice report cited multiple reasons for choosing a hybrid practice model, including:

  • A broader set of offerings for clients with differing needs, such as clients in an asset de-accumulation phase with more need for guaranteed income products
  • An expanded selection of alternative investments, structured products and private placements
  • Access to different client segments such as corporate retirement plans that need brokerage products
  • Preservation of income streams from legacy brokerage business
  • Flexibility of products and services provided to clients in a rapidly changing industry
  • Ability to grow by attracting other hybrid advisors in transition to join their firm

The report also lists considerations for advisors evaluating the hybrid model in five key areas of an advisor’s practice:

  • Overall business objectives and value proposition – What is the firm’s mission and philosophy and who are the core clients it will serve?
  • Investment philosophy – What kind of investment products does the firm need to provide in order to execute its investment philosophy and serve its clients needs?
  • Infrastructure and systems – What are the firm’s needs in terms of systems and technology, such as CRM, performance reporting, asset allocation, rebalancing, trade order management, and data input and reconciliation?
  • Compliance and regulation – Based on the hybrid model the advisor chooses, how will the firm be regulated? Independent RIAs are currently regulated by the SEC or states, while IBD advisors are currently regulated by FINRA with the SEC and states having some regulatory jurisdiction.
  • Firm economics – What are the advisor’s needs and preferences around equity ownership; income preservation, income mix and income goals; and the level of personal time and effort to meet business goals?

“Ultimately, the decision to adopt a hybrid practice model and determine which flavor is the right one comes down to an advisor’s business philosophy and objectives,” noted Georgis. “Once things like investment approach and mix of investments, desired revenue model, and ideal client profile are in place, an advisor is in a good position to determine the right path to take.”

Schwab’s Support for Hybrid Advisors

In addition to the latest MKT report, Schwab provides hybrid advisors – and those considering a hybrid model – with numerous tools, resources, and insights gained from working with hundreds of advisors transitioning to independence. Approximately 20 percent of Schwab’s existing RIA client base holds a dual registration.

Specifically for advisors considering a hybrid practice model, Schwab currently has relationships with more than 25 IBDs to provide dually-registered hybrid advisors with choice and flexibility to help them meet their specific business needs. In early 2010, Schwab became the first RIA custodian on the NFP IndeSuite™ platform, which provides independent RIAs with the ability to manage traditional brokerage and fee-based advisory businesses through a single technology solution. Through the relationship, advisors have access to a fully-integrated service team and a single entry point through the AdvisorComplete™ dashboard, where they can access a central location for trading, portfolio management, consolidated portfolio review, and compliance and back-office billing and support.

“Advisors transitioning to independence are looking to move away from proprietary models that lack the flexibility they need to run their business and better serve clients,” emphasized Georgis. “In building our offer for hybrid advisors, we think it is important to provide what advisors want – an open architecture approach in which the custodian doesn’t dictate which broker-dealer partner an advisor will use.”

Schwab Advisor Transition Services™

Through Schwab, transitioning advisors have access to a range of custodial, operational, trading and practice management support, including business development tools and guidance, investment research, rebalancing and portfolio management tools, performance reporting, and compliance tools.

Schwab Advisor Transition Services™ resources include:

  • A dedicated Schwab Business Development Officer who serves as an advisor’s main point of contact throughout a transition, provides consultation on developing a plan, and connects an advisor with the resources needed throughout the process
  • Schwab Business Start Up Solutions Startup Planning Tool and Cost Calculator to help advisors plan their transition and estimate costs
  • Law firm arrangements to provide transitioning advisors with access to legal providers that have extensive experience working with advisors in transition
  • Schwab Performance Technologies’ turnkey portfolio management, data reconciliation and client performance reporting platform
  • Office establishment resources including commercial real estate services, discounts on office furniture, access to consultation and services on E&O Insurance programs, and access to health and benefits programs
  • Bundled marketing communications material designed to support advisors in their client relationship efforts

About Schwab Market Knowledge Tools® (MKT) Reports

The Schwab Market Knowledge Tools series is an ongoing program of industry research reports, white papers and guides from Charles Schwab designed to keep investment advisors on the forefront of trends and competitive challenges facing the industry today. Offered exclusively to Charles Schwab’s valued clients, the Schwab MKT program delivers the kind of relevant and timely information needed for future business planning. Information provided is for general informational purposes only and is not intended to provide specific financial, compliance, regulatory or legal advice. Schwab makes no representations about the accuracy of the information or its appropriateness for any given situation. For further information, please contact your legal counsel.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with more than 300 offices and 8.0 million client brokerage accounts, 1.5 million corporate retirement plan participants, 701,000 banking accounts, and $1.6 trillion in client assets as of Jan. 31, 2011. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,, and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at and (0211-1488)

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1 Cerulli Quantitative Update: Advisor Metrics 2010. Cerulli Associates 2010.

2 Cerulli Quantitative Update: Advisor Metrics 2010. Cerulli Associates 2010.


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