A unique breed of financial advisors is growing in response to investors' demand for access to a broad array of investment options and choices in how they receive and pay for advice.
In industry parlance, they are known either as dually registered or hybrid advisors, depending on whom you ask.
Regardless of what you call them, their business model is this: They are affiliated with a broker-dealer for commission-based securities trades while meeting separate standards for the fee-based, advice side of their business through an independent registered investment advisor.
An RIA is a firm or person that provides investment advice and is registered with the Securities and Exchange Commission or their state's securities regulators. Generally, RIAs managing less than $100 million register with their state, and those with more than that must register with the SEC.
"We get things done more easily and have a lot more flexibility," said Craig Cowles, a certified financial planner and partner at Cardinal Wealth Advisors, which partners with an independent RIA, 360 Wealth Management.
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Cowles said that by teaming up with 360, his firm can provide advice to clients with brokerage accounts whose assets are managed elsewhere.
For investors, one appeal of an independent RIA is the accompanying "fiduciary standard," the obligation to provide suitable investment advice and to always act in the client's best interest.
"Clients are demanding it," said Benjamin Harrison, a director and the head of business development for Pershing Advisor Solutions. "They want advice, and they want it to be objective, independent advice."
The traditional means of paying for asset management—paying brokers commission based on any buying and selling securities they do on your behalf—comes only with a "suitability" standard.
This basically means ensuring that investments made on behalf of a client are suitable, but it falls short of the RIA fiduciary standard.
"We're seeing a movement in advice delivery going from professional sellers to professional buyers," Harrison said. "The [traditional model] was [that] an advisor sold products; now professional buyers are on the same side of the table as clients."
Research firm Cerulli Associates, which calls independent RIAs with broker-dealer affiliation dually registered advisors, predicts that, combined with independent RIAs unaffiliated with a broker-dealer, the segment will manage 28 percent of assets by the end of 2018. That compares with 20 percent at year-end 2013.
"There are advisors attracted to that model," said Kenton Shirk, an associate director for Cerulli and lead analyst for its intermediary practice. "It gives them flexibility in [things such as] how they structure their fees and how they choose which technology to use."
Shirk added that megateam practices, defined as firms with $500 million or more in assets under management, are more likely to prefer that model as they become less reliant on the broker-dealer side of their practice.
Advisors who use a broker-dealer's RIA are not included in Cerulli's calculations.
That channel also offers investors a mix of fee-based advice and commission-based services.
About five years ago, San Asato, a CFP and president of McNellis & Asato, switched from being an RIA whose oversight came from the SEC to one who answers to state regulators only for his consulting work. That's because he also began using a broker-dealer's RIA for compliance support and back-office and tech solutions, along with the clearing and custody of assets.
"Compliance became so onerous, with staff spending so much time on it," Asato said. "My decision was to help streamline my business."
He said that for his clients, there was no change in the services or products they were using when he made the switch.
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For investors, whether their advisory firm uses a broker-dealer's RIA or its own RIA might be immaterial. But some advisors say there are benefits to many investors who work with an independent RIA.
Chad Atkins, a CFP and owner of 360 Wealth Management, pointed out that while a broker-dealer might impose a high minimum on a specific type of account if an advisor uses its corporate RIA, being an independent RIA lets the advisor choose to take on smaller accounts.
With a huge transfer of wealth looming—estimated at tens of billions of dollars over the next several decades—it can make sense for advisors to establish relationships with investors who might have smaller account balances.
"We can be more open-minded because in two or three years [the client] will hit that amount," Atkins said. "So some of our clients have $5 million and some have $50,000."
According to the U.S. Bureau of Labor Statistics, the number of financial advisors is expected to grow by 32 percent between 2010 and 2020. If Cerulli's predictions are correct, much of that growth will be in the RIA world.
"The trend toward growth in the advice channel can really be attributed to the ability for end investors to be served in different capacities by their advisors," Harrison of Pershing said. "It leads to careful selections of products that [advisors] offer, and it leads to fewer conflicts of interest."
—By Sarah O'Brien, special to CNBC.com