Replacing 1 head of the 2 headed TPA/RIA “monster”

Everyone knows my bias against third party administration (TPA) firms that have their own registered investment advisory (RIA) firm. A perfect example of the problems with that just came up.

A broker friend of mine advised me of a new client who loves the TPA, but wants to change the RIA. The problem is that the TPA is the RIA. I told the broker that it’s pretty hard to fire the TPA as the RIA because they will probably fight tooth and nail to keep that client for their RIA side. It’s like using a hairdresser who you use for color and a cut. If you select another hairdresser to your color while keeping the old one for a cut, the relationship becomes frayed as the old hairdresser will try to claim that hair coloring business again.

I saw this first hand with my old place. An RIA we worked with that did a great job with law firms took one of our clients on the RIA side while we still held the TPA slot. Needless to say, my boss wasn’t a happy camper and eventually had the client lie when they hired the new RIA, so we could maintain another two quarters of RIA fees.

Aside from the revenue sharing aspect of the TPA/RIA “monster”, my issues is that it’s very hard to replace one piece of the one stop TPA shop (whether it’s the legal, RIA, or TPA side) without hard feelings or the TPA trying to reclaim that lost business.

While I am sure there are some good TPAs who are RIAs, I just like avoiding the conflict and enjoy hiring an independent TPA and independent RIA so I don’t worry about hard feelings if I remove a giant piece from the one stop shop puzzle.