Serving Clients’ Best Interests with an Open Architecture

As fiduciaries, RIAs are bound to provide two important duties when managing client finances: duty of care and duty of loyalty. 

Under duty of care, advisors must make informed business decisions by reviewing all relevant information. To act in accordance with their duty of loyalty, advisors must not have any undisclosed economic or personal conflicts of interest. Nor can they use their position to further their private interests.

Essentially, advisors are obligated to put their clients’ interests first. They can best achieve this by operating within an open architecture rather than a closed one.

Challenges with Closed Architectures

Under a closed architecture, advisors can only offer the products and services carried by their bank or investment firm, which may conflict with clients’ best interests. Because a brokerage may not offer all the financial products a client needs, advisors may be severely limited as they work to customize investment plans based on a client’s goals, time horizon, and risk tolerance. They may also struggle to attract high-net-worth clients who often need a wide range of products and services to meet their goals.

Conflicts of interest may also occur because the firm may increase profit margins or prioritize profits above their clients’ best interests. Some broker-dealers may prohibit open architectures because they:

  • Fear losing revenue.
  • Are reluctant to oversee business conducted off the firm’s primary platform.

Benefits of Open Architectures

An open architecture describes an RIA’s ability to offer proprietary and non-proprietary products and services. With this freedom, advisors can take an approach better tailored to the needs of each client. In this environment, advisors can collaborate to identify and use a wider array of investment products and services, which can foster an entrepreneurial culture within the firm.

RIAs using open architectures may have better client retention rates because they’re able to offer the solutions clients need. By offering a broad range of investments, RIAs can also help clients diversify, which can also help insulate the firm as returns aren’t based solely on the performance of its products.

Because an RIA with an open architecture offers a wide selection of investments, advisors can take a more holistic approach to wealth management with clients’ best interests at its center.

The benefits of an open architecture can include:

  • Improved returns – By offering high-performing products, advisors can help clients achieve higher returns.
  • Advisor independence – Advisors gain more control over their business, earnings, and time, with the freedom to offer the investments they believe will benefit clients.
  • Deeper client relationships – Advisors can build trust with clients because they know advisors are recommending the products that best meet their needs.
  • Increased transparency – As fiduciaries, RIAs are required to place clients’ interests first and be transparent regarding fees.

With an open architecture, RIAs can deepen client relationships by offering a wider variety of products to help clients achieve their goals.

For help serving your clients’ best interests with an open architecture, contact Alli Jordan.


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