Osaic, the private equity-backed independent broker/dealer that recently completed a multi-year consolidation of several acquired BDs, is now focused on its next challenge: Building out affiliation models across the RIA space, including an employee channel.
The June acquisition of $13.5 billion fee-only CW Advisors established a significant beachhead for those efforts, according to CEO Jamie Price, though the leadership of that RIA division took a turn about one month later with the sudden departures of two top RIA executives.
Ed Swenson, who was hired from Dynasty Financial Partners to run the firm’s RIA Solutions division in June 2023, left shortly after the CW Advisors deal. Senior Vice President Scott Hadley’s departure for a role at Hightower Advisors came shortly thereafter. For Price and his private equity backers at Reverence Capital, getting the right pieces of the RIA puzzle in place is essential for the firm’s future. He is now looking internally and externally to put new leadership in place.
“The RIA business is a big opportunity for us,” Price said. “It is going to go through a consolidation, just like the wirehouses did 30 years ago and the independent broker/dealers have done, which we’ve been a beneficiary of.”
The financial advice industry of the future, as Price sees it, will be dominated by several “mega-wealth” firms, some fee-only, and some with flexible fee-based models with various affiliations. Price views Osaic as one of those mega firms, helped in part by the many advisors retiring from, or shifting out of, the traditional broker/dealer setup and toward some version of the RIA model.
The average Osaic advisor today is close to evenly split between advisory and commission-based business, he said, but the RIA employee model is its fastest-growing segment.
“I can see us easily having half of our business looking either like a corporate RIA W-2 (model), 60% to 70% to 80% fee-based and 100% fee-based in CW with the fee-only RIAs,” Price said.
The firm has fast-moving competition in its RIA push. Between the proliferation of private equity-controlled RIAs, minority investors and affiliate platforms, fiduciary-minded advisors have many options that often come with potentially lucrative offers. Meanwhile, Osaic makes the case that its 18-month integration to bring eight separate broker/dealers onto one platform has made it a better, more streamlined firm that leverages scale as an advantage, not a hindrance. But some advisors still seem wary, with breakaways claiming the integration caused technology frustrations and less personalized service.
Price said, however, it’s partly because of the new scale that Osaic can successfully compete in the disparate RIA marketplace. Osaic has other options for RIAs, including partnering with advisors under a 1099 affiliate model and leveraging Osaic’s TAMP, or joining CW Advisors, which will keep its employee model, branding and fee-only focus but add access to some of Osaic’s adjacent services.
“We’re a significant corporate RIA player,” Price said. “We have served as a platform provider to RIAs in a significant way, and now we’re going into the RIA business, but actually owning them, including now CW in the pure fee-only segment.”
Osaic declined to give exact advisor numbers for its W-2 channel, which former leader Swenson had been championing. Neither Swenson nor Hadley responded to requests for comment.
Price said Cindy Hammel, head of Osaic Advisors, is playing an important role in shaping the RIA channels. Hammel had been running the integration workstream, and Price said she understands the “tech and operational side of our business, both on the RIA and independent dual-registrant side.”
Shakeup
Two of Osaic’s largest competitors, LPL Financial and Raymond James, have RIA channels that also include corporate W-2 options. As Price pitches it, the difference is that Osaic is multi-custodial and not self-clearing, with Fidelity’s National Financial Services, Schwab and BNY Pershing as options, which makes for smoother integrations with other multi-custodial advisors.
He argues that declining fees and higher costs at the self-clearing businesses provide a competitive advantage for Osaic; as a non-clearing broker, the firm has lower capital requirements and operational costs.
“We can work a flexible operating arrangement because we don’t have self-clearing economics to try to fill up the bucket,” he said. “We can do that by owning the economics inside of the RIA. And so our view is that the custody agents, Schwab, TD [Ameritrade] and Fidelity … want to work with us, knowing that we will be placing assets on their platform, and want to expand more broadly in the RIA space.”
Frank LaRosa, CEO of recruiting firm Elite Consulting Partners, said after the two executive departures, he had conversations with other industry watchers who suggested RIA Solutions was a “loss-leader” for Osaic—a channel it has to have in the marketplace to accommodate advisors but not the primary focus of the business.
“It was hard to see them competing in a marketplace with so many other options for independent advisors to partner with platform-providers or get minority investment,” LaRosa said. “Trying to convince an advisor to join your corporate RIA or sell theirs into yours is going to be difficult. You’d either have to give away the farm, or really convince them that you have all these services and technology that is really great and will be kept up, which also costs a lot of money.”
LaRosa also pointed out that, if an advisor can find better pricing and service offerings with a large RIA, it may be worth a few percentage points of margin to free up time to focus on clients and growth.
Jeff Nash, CEO and co-founder of consultancy BridgeMark Strategies, sees promise in Osaic’s thesis that advisors will be drawn to a multi-custodial broker/dealer that is not self-clearing.
“There are very few firms with the size and scale of Osaic that offer the multi-custody, hybrid solutions,” Nash said.
He also sees Osaic’s scale and potential services as a differentiator that will attract advisors, even if they need to take a small haircut to do so.
“They’re offering things like technology, back-office support and succession planning options that a smaller RIA just doesn’t offer,” Nash said.
While large competitors like LPL, Raymond James and Ameriprise are self-clearing, competitors like Cetera and Cambridge Investment Research offer other custody options.
Many firms see an opportunity to attract advisors from another IBD, Commonwealth, which LPL recently acquired. Commonwealth had begun allowing for multi-custody options for advisors beyond its primary clearing firm, Fidelity’s National Financial Services. Opening up custody options would help its affiliated advisory firms tap the M&A market, CEO Wayne Bloom told Wealthmanagement.com at the time, by reducing the friction of forcing those acquired advisors to change custodians. As a self-clearing broker, LPL has traditionally charged advisors who want to custody assets elsewhere.
Advisor Attrition
Scale brings advantages, but for many advisors, the size of a firm can be a detractor. Osaic knows this well after seeing some prominent defections amid its integration journey.
Take Andrew Palomo, a financial planner and owner of Pillar Financial Advisors in Oak Brook, Ill. He had previously been at LPL Financial when it went public, left the firm for another broker/dealer, and got déjà vu when he found out that division would be rolled up into Osaic.
“I’d seen this play out once before, and I know how the second act opens,” said Palomo, who changed affiliations from Osaic to LaSalle St. in May. “When you’re doing a massive project like this, the culture gets affected, and you have people who are sensitive to that who seek a different culture.”
Some of the differences Palomo saw were fewer personal contacts inside the firm and longer wait times for service calls.
“It used to be that I would shoot an email to the person I’m dealing with daily, and he would get it resolved in a day or two,” he said. He said his service representative would get equally frustrated because the people inside the organization on whom they relied were disappearing.
Palomo said Osaic may have sorted those issues out, but he didn’t want to wait for it when he had clients to serve and a business to run. Even if the answer to a request was no, “at least I get that ‘no’ more quickly.”
The advisor was also concerned about being at a firm controlled by private equity investors.
“I knew any firm with private equity backing was likely planning an exit strategy through an IPO or sale,” he said. “For advisors like me, this meant anticipating potential future changes. I specifically looked for firms with stable ownership structures where senior management owns stock and has already completed their first- and second-generation leadership transition.”
Price concedes that Osaic put advisors “through an enormous amount of change.” However, he and Reverence Capital Partners, the firm’s PE owner, also saw the 18-month integration as essential for the business’s future.
“I think we’re a way better company coming out of it,” he said. “And I fully suspect by the time we get into year-end, we will start to see attrition normalized back to where we were pre-Journey to One,” the firm’s nomenclature for the consolidation.
Flexibility Rules
Brian Heapps sees value in building an independent, hybrid RIA within the Osaic framework. He built Osaic’s largest independent firm, Innovative Financial Group, with 200 hybrid advisors.
Heapps had been CEO of John Hancock’s independent broker/dealer division when it was sold to then Advisor Group around 2017. Seeing the industry shift out of insurance brokerage models toward independence, he felt the best path was to build an independent branch within Osaic and recruit advisors both from within and outside of the broker/dealer.
“The value proposition really boils down to the flexibility,” he said. “The No. 1 attraction to these recruits that we are bringing into our firm is the custody and clearing choice that we have at Osaic. … having that choice appeals to every other broker/dealer that’s out there.”
Additionally, Heapps said, Osaic’s scale and Envestnet as the investment platform are a draw for advisors who want to ensure they can remain flexible as their businesses evolve.
“Any number of them are using UMA accounts, third-party money managers, some are managing the client assets themselves—and the flexibility that we have to do any of those or a mixture of those is really attractive,” he said.
Heapps said Innovative’s retention rate is 99%, and that it is attracting advisors to the platform equally between Osaic and external broker/dealers.
At least some financial backers are betting other advisors will agree with Heapps. When Osaic recently went to the capital markets to finance the CW Advisors acquisition, Price said the offering was oversubscribed.
That firm also took the opportunity to rework its financing and raise its credit revolver—previously untapped—to $1 billion.
“We’ve pushed everything out to 2032 primarily because of the interest in our company and, I think, in our business model,” he said, noting that there are a lot of Wall Street banks and institutional backers “looking to play the exact themes [of independent wealth] for the reason private money likes it so much.”
“Public investors also want to play independent wealth more broadly, and there aren’t a lot of choices in the public markets right now,” he said.
Price sees Osaic most likely becoming one of those public options in the coming years, but not yet. He said the firm is “comfortable” in its private position, with more work to be done.
