A question that you may have asked yourself is why you should hire an independent financial advisor?
A common question that I hear from people who are not familiar with the difference between a financial advisor who is independent vs. those that are employees of brokerage firms is, “Aren’t you guys all the same anyway?”
I’m glad you asked. The quick answer is “No.” There are significant differences between financial advisor who is independent and a financial advisor who works in a “captive employee relationship” with one of the national publicly traded brokerage firms.
In this post, I have outlined four (4) of the most important categories where a distinction can be made between an independent financial advisor vs. a financial advisor who is considered a “captive” advisor, meaning that he or she is an employee of a brokerage firm: 1) Adherence to a Fiduciary Standard of Excellence 2) Greater Depth and Breadth of Investment Products and Services 3) Freedom to Offer Competitive Pricing 4) Access to Multiple Institutional Brokerage Platforms
Adherence to A Fiduciary Standard of Excellence
Unlike financial advisors who are employed by large national brokerage firms, an independent financial advisor may obtain the nations only credentials that clearly defines the meaning of a fiduciary standard of excellence and responsibility, including more importantly, who is a fiduciary; thus validating their commitment to adhere to fiduciary principles, procedures and practices, such as the education and training one receives when pursuing the Accredited Investment Fiduciary Analyst (AIFA®) designation.
Brokerage firms that employs financial advisors in a captive capacity are opposed to allowing their financial advisors to formally hold themselves out to the public as a “fiduciary.” Therefore, they are prohibited from obtaining the AIFA® or similar designation that certifies that they adhere to the highest recognizable standards of fiduciary excellence. Fiduciary360, the educational, licensing and certifying institute that gives its graduates the right to use the AIFA® mark defines an investment fiduciary “as someone who is providing investment advice or managing the assets of another person and stands in a special relationship of trust, confidence, and/or legal responsibility.”
Investment fiduciaries can be divided generally into three groups: Investment Stewards, Investment Advisors, and Investment Managers. An Investment Steward is a person who has the legal responsibility for managing investment decisions, including plan sponsors, trustees, and investment committee members. An Investment Advisor is a professional who is responsible for providing investment advice and/or managing investment decisions. Investment Advisors include wealth managers, financial advisors, trust officers, financial consultants, investment consultants, financial planners, and fiduciary advisers. An Investment Manager is a professional who has discretion to select specific securities for separate accounts, mutual and exchange-traded funds, commingled trusts, and unit trusts.
Greater Depth and Breadth of Investment Products and Services..
For Example, Have You Ever Heard of Betterment? Independent financial advisors have access to a wide range of wealth management and investment advisory products & services. Unlike many of the national brokerage firms that offer a limited number of mutual fund families and/or third-party money managers with investment strategies that represent all of the asset classes, rather than a diverse selection of money managers that for the most part primarily invest in a limited number of asset classes, such as Large Caps.
Independent Financial Advisors Have the Ability to be More Cost Competitive
An investment professional who is not self employed typically works for a brokerage firm that is publicly traded. In other words, those type of firms tend to be bound by the pressure of Shareholders and Wall Street Analysts to cut costs, increase profit margins and earn greater recurring profits. This often translates into lower pay for the advisor who is not self employed; and at times an increase in commissions and fees for their clients.
However, independent financial advisors are able to pass significant cost savings on to their clients. Their ability to be cost competitive with respect to their compensation has everything to do with the fact that they do not have to “toe the line” for some large publicly traded national brokerage firm. In many cases, independent financial advisors pay 100% of their own expenses which may include office rent or lease. Therefore, they can more easily achieve a fixed cost of doing business, which may translate into lower fees for their clients.
Access to Multiple Institutional Investment Custodians and Brokerages
For the past 20 years, there has been a growing trend with independent financial advisors who were once employed by national brokerage firms and who have later decided to pursue a private practice. In many cases, their reason for going independent is so that they can offer advice that is objective and in the best interest of their clients. Like myself, these financial advisors want to throw off any “corporate agenda” being imposed on our clients such as, having to sell a proprietary product, the inability to offe more competitive (i.e. lower) pricing, or only being able to provide “in-house” investment research. Being an independent financial advisor means that we have chosen this path in order to remove any conflict of interest that could undermine the values, needs and goals of our clients.
- Financial and Retirement Planning
- Portfolio Management and Investment Allocation (401K, IRA, Brokerage)
- Estate Planning
- Retirement Income Planning
- Insurance and Annuities