Read Rise of the Super Models: Myths and Realities in the Financial Services Industry

Read Rise of the Super Models: Missing Pieces and New Gatekeepers.

Read an explainer on the three types of Super Models.

The Super Models series is about the evolving and future sustainable business models in the financial advisory business—business models that have evolved from the standpoint of the advisor making decisions about what they need as they grow their business: adding, creating teams, testing some things, compensation models, partnership models, and so forth.

Stratos Wealth Partners, a Super OSJ (Office of Supervisory Jurisdiction), is a good example of a business model that has not only enjoyed great success but will continue to thrive as the financial services landscape shifts and evolves. This innovative firm – and the nearly 300 financial advisors it serves – represents one of the three Super Models that will anchor the industry and help advisors mitigate the 3-C’s: Compliance and regulatory concerns, Changing consumer demands, and Competitive pressures. 

Super OSJs are increasingly taking over the supervisory burden and providing other back-office and business services for breakaway brokers and other independent advisors who realize they are not interested in doing everything on their own. Stratos’ tagline, Entrepreneurs Helping Entrepreneurs, captures the essence of what it means to be a Super OSJ. The firm provides a comprehensive array of tools and resources to support financial advisors as they establish and run their own independent financial advisory businesses.

“Many advisors find it easier to go independent – and remain profitable — as part of an established firm,” said founder and CEO Jeff Concepcion, who launched Stratos in October of 2008 after a long and successful career with Lincoln Financial Network. He and his team have worked tirelessly to fill a need for sophisticated advisors and their clients. “Stratos provides the infrastructure, resources and support advisors need so they can focus on their core competency: advising their clients. They are able to enjoy true independence while benefiting from logistical support, lower startup costs, shared overhead and other economies of scale. For transitioning advisors, our goal is to make that move smooth and efficient. For existing independents, our goal is to make running a profitable business as easy as possible.”

Joining a Super OSJ provides advisors with many benefits. They can choose their own business model and location, determine their own spending priorities, make their own independent recommendations to their clients, and build equity as an owner/partner. “In short, they control their own destiny – but they have all the support they may have become accustomed to if they were previously employed by a large, national organization such as UBS, Merrill Lynch or Morgan Stanley,” Concepcion said. “Joining a Super OSJ could be thought of as supported independence. For those leaving a wirehouse or regional firm, it is independence but with a soft landing. The majority of the folks who are affiliated with us have lived inside of an environment where they’ve been an employee or acted much like an employee. While they want the benefits of going independent, they don’t really know how to navigate all the elements – real estate, HR benefits, compliance and technology – these things are outside of their realm and not core to what they do every day for a client. That’s where we come in.”

The notion that Stratos provides more than they’ve gotten from the wirehouse or from the bank – and that Stratos does it on an incredibly efficient basis – is what intrigues them. “With Stratos, they are independent but they are not on an island. In addition, our model is so efficient that we can pass through on average of somewhere in the mid-80 percent range of their revenue; this is in stark contrast to the typical 40 percent payout they typically what they get in a wirehouse or bank model.“

The other value proposition Stratos offers is for advisors who have already gone independent and are trying to do everything on their own. Nearly one-third of the advisors with Stratos have come from independent firms where they were not growing the way they wanted. They were too distracted managing minutia and wearing hats that didn’t fit well. When you are a small, independent office, it’s tough to select the right technology and real estate, find and manage good employees, handle the billing and accounting, etc. – and still serve your clients well. After a while, they simply throw up their hands and say to Concepcion something like this: “Gosh, had I known about this previously, I would have plugged into an environment like yours. For a relativity small give-up on margin I can gain a lot of support I don’t have today and focus on what matters – which is business development, retention and client relationship management.”

Flexible Support 

Stratos opened its first office in February 2009 and now has north of 100 locations and 700 bodies – approximately 70 of which are Stratos home office and field employees, meaning the staff that supports the advisors, some of which Stratos subsidizes and pays for, some of which the advisor subsidizes and pays for. Concepcion says the projection for 2018 gross revenue is $100 million. AUA (assets under advisement) is around $11.5 billion. Stratos has an amazing history of growth: it is continually ranked as one of the top five OSJs for the nation’s largest independent broker/dealer, LPL, in every metric that they measure. Not bad for an OSJ that has only been around for about eight years.

In terms of who is coming to Stratos, Concepcion assumed in the beginning that 95 percent would be breakaway brokers, but in reality is has turned out to be about 70 percent. “Folks leaving the wires and banks, and environments like that, who want to build and independent practice gravitate to Stratos. The other one-third are folks who have gone independent who now see the value in the support we offer that helps them scale and grow.”

There are two ways people plug in. They are both fully independent and 1099. “In the full service model, we will take down real estate anywhere in the United States, build out that space, wire in all the technology and pay all the LPL fees,” Concepcion said. “This works great for a breakaway broker who’s really entrepreneurial but not sure he or she wants to take on all that fixed risk. In exchange for a few extra points on the net revenue, we will turnkey that whole model so there is less risk for the advisor. There are a lot of advisors who say, ‘Hey, I’ve lived my whole life at Merrill at 38 points and I know 68 points with you is more than 38 points there so you pick up all the fixed costs and risks. If you make a few extra points, God Bless you, that’s fine. I am happy to push some of those overhead startup costs to you.’ The other model is also independent but the advisor receives a higher payout due to the fact that he or she is taking on the startup and ongoing costs themselves.”

In return for all this support, Stratos takes a percentage of the revenue off the top from the advisor’s business. The advisor can brand how they want to brand, manage their own assets, and do their own financial plans – or, if they wish, Stratos can manage the assets and create professional financial plans for the advisor (a team of CFPs and CFAs support the financial planning and portfolio management functions). Interestingly, while the advisors who select Stratos can brand on their own, most choose to use the Stratos brand. Stratos can also handle marketing essentials for the advisor – such as brand name advice, logos, taglines, mission statements, website look and feel, etc. – for advisors who want to maintain their own brand identity.

Succession Logic 

Stratos will also help its advisors acquire other advisory businesses, but Stratos is not interested in being the direct acquirer of RIAs who simply want to tuck in as a late-career succession strategy. On the unplanned exit side of the equation, when an advisor has not evolved into a true business and does not have someone who can run the firm in their absence, Stratos will buy a 30 to 40 percent stake in that advisor’s business; that way the advisor can maintain their own brand and continue on as a standalone business. “We quietly sit back and own a slice of the business,” Concepcion said. “We obligate ourselves to buy the balance if something happens to them. In the meantime, they can leverage as much or as little as we have to offer to help grow that business. We are happy to be a silent partner, standing in the background, helping them protect their ability to monetize either unplanned or planned exits in the future.” For many advisors, this provides ultimate flexibility where they don’t have to make that permanent long-term decision, yet they have a capital partner that is vested as a provider of services to them – its a unique combination.

One other acquisition strategy Stratos offers is where the advisor comes into a centralized RIA with unified asset management, billing, HR, compliance oversight and marketing/branding; in this case, they do more of a full integration. “We are creating a farm system to give them full autonomy and all the help that they want with a fairly large staff, but we have created a feeder system because in eight or nine years from now, the successor might not be a good stock picker, like the founding advisor, or the successor might not want to be a supervisor and hold a FINRA Series 24 license. One side of the business feeds the other.”

Evolutary Success 

Financial professionals working in a wirehouse or bank environment will typically outgrow the relationship after 10 or 20 years. They become masterful at working with their clients and bringing in new business, but the equation always seems to tip in favor of the larger entity. These tenured professionals may not know about partners like Stratos – OSJs who are committed to staying on the same side of the table with them. In a Super OSJ Model, what the advisor brings to the business and what the Super OSJ adds to it, put together, increases value. When you are growing the pie together, it’s not about payout percentages and the old model. It’s about, on an absolute basis, is your income increasing? Is the value of your practice increasing because of your association? If those things are true, then the value of the OSJ is increasing as well. Organizations such as Stratos have managed to align their interests – it’s a model where the sky’s the limit and everyone can do well. 

“I say from the podium and meetings every day, ‘I work for you; you don’t work for us. Tell us what you need. We are here to serve you.’ It’s that type of a symbiotic relationship,” Concepcion added.

“I remember day one, the day we started in 2009 – not that long ago. I told people I wanted shareholders. I said they would own real stock, the same stock that I would own side by side. They would buy it at a discount and earn the right because they would be the engines to our growth – and we’ve done exactly what we said we would. Our business model is completely transparent. Shareholders can look at our balance sheet and tell us where capital should be directed. This makes our model sustainable because key people are not going to outgrow us. They are not going to wake up two years from now and go, ‘Wait a second, there are 20 or 30 points over here you didn’t tell me about?’ We are not going to have that breach of trust because we are transparent and upfront with them.”

“I’ve heard in the next 10 years there is going to be a massive consolidation and very few firms that will be scaled up, powerhouse dominator players, on a national basis. Well, I’m in all. I’m doubled-down. We intend to be one of the firms that emerges with greater scale.”

Read the True Enterprise case study: True Enterprises, like EMM Wealth, Provide a Unified Experience to Clients and Stand the Test of Time

Read the Super Ensemble case study: Super Ensembles, like Crosspoint Wealth Advisors, Provide a Great Example for Solo Advisors and Shared Support Silos Considering their Options

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