When it comes to managing your investments, navigating through the sea of the various financial professionals can be overwhelming. There are financial advisors, wealth managers, stockbrokers, etc. Each of these could be fee-only, fee-based, or commission only. Then you get into the licenses—Series 7, Series 24, Series 6, Series 66 and Series 63. After all that, you’ll see designations like CHFC, CFP®, CPA, CFA. I think you get the point. With all the options out there, choosing a financial advisor can be overwhelming.
Here’s the short list of questions to ask when contemplating what type of advisor best fits your needs:
With that in mind, let’s take a closer look at choosing a financial advisor and how a small, independent advisor might be a better fit for your individual needs.
If you want to hand your money over and forget about it, then a big firm is often good at managing the money you don’t want control over. However, if you want a say in the decisions, then go with an independent advisor. When you take that route, we become a team. We both agree on strategies and both work toward that goal. Professionals at larger firms are often looking to meet quotas. Many times you may be sold a product you may not need or doesn’t fit your goals. The reason this occurs is that of volume.
Larger firms often have a higher volume of accounts, customers, or product sales to drive profits to their shareholders. Many times the advisor employees have little say in the advice given to the investor. The advisor employees are given strict guidelines on what they are allowed to ‘sell’ the customers of the firm. But because of the volume game, the advisor employee often has limited time in developing the relationship needed to provide custom guidance.
Speaking of goals, a local independent advisor can sit with you look at your overall plan, not just the area of the plan which meets the advisor’s quota. They can offer a holistic approach to managing your investments, and that isn’t just your stocks or retirement accounts. They ask questions to set your entire financial house in order. When do you want to retire? How much do you want to retire with? What does retirement look like for you? Where do you want to be financially in 10 years? What can be done to minimize your taxes?
Many of our clients switched from the big box firms to us for these reasons. We’ll call these clients Fred and Wilma (because I like The Flintstones). So Fred and Wilma have about a $1.9 million dollar portfolio. They were told by a nationally-recognized firm that they’re a small fish and the advisor let them know they only work with people whose portfolio tops eight figures or more.
Now, I don’t know about you, but $1.9 million dollars is not a small amount of money by any stretch of the imagination. They had worked hard to save that amount. So Fred and Wilma were understandably offended by this statement. So the couple decided to take their money elsewhere. They began interviewing advisors with the intention of finding someone that would better serve their needs.
When they came to us, they told us that they were looking for a consultant with a limited clientele, a smaller client base, that would spend more time making them feel as though they mattered. They wanted someone that would answer their calls and return messages promptly. If they were going to let someone new handle their $1.9 million portfolio, they wanted it to put them in the top 20 wealthiest clientele of the company. They were looking to work with a younger advisor – someone that would be with them until the end. That way as they aged, they wouldn’t be handed off to someone they didn’t trust – a person that didn’t know them or their desires, because their advisor was retiring.
Finding this type of service with a larger firm is often difficult. It’s just not the way they operate. Many times your small, independent advisors are working under fiduciary guidelines. They are working to serve YOUR best interest. That’s not to say you won’t get that type of management with an advisor at a large firm; you can. However, it’s more likely with your local advisor due to the custom approach the smaller independent firms follow. Regardless of a large firm or small firm, you must work with an advisor who has the ethical and legal obligation to do so because they’re following a fiduciary standard vs. a suitability standard.
Maybe you’ve only invested in the 401k at work, and you’re changing jobs. Now you need to rollover your 401k over to an IRA, and you’ve never even seen the advisor that controls your portfolio. Since you haven’t done much with it, you walk into your local bank, sit down and talk to Sally at the desk who greets you warmly each time you enter and roll it over into an IRA account. Sally will give you a break down of how much interest you’ll earn while your money is in a mutual fund, ask you sign a few pages, send you out with a pretty little folder of paperwork, and thank you for your business. “Wow! That was easy,” you think to yourself. You have always liked Sally in the ten years you’ve banked there. You know she’ll watch your money for sure.
The problem with that? Sally does that every day for every “Joe” that comes through the door needing to roll over a 401k… every single day. She also sets up estate accounts, checking accounts, savings accounts, and any other account at the bank. Sally may or may not be credentialed in the financial world, but you’re going to trust her to take care of your retirement funds all because she smiles and welcomes you each time you enter the bank?
Or perhaps you decide to take your funds to a large firm instead. It’s not uncommon for asset managers at these firms to simply plug people into a model portfolio. These advisors are typically employed as W-2 employees with their firms. Therefore they’re often working to meet a sales goal or certain criteria with the clients in order to maintain the contracts.
We had clients of ours, George and Jane Jetson (because not only am I a Flintstone fan, but I also like The Jetsons) who chose to invest their money with a larger firm because of the notoriety of the firm’s name. Larger companies build their brand by utilizing million-dollar marketing campaigns. Your hometown guy, not so much. So George and Jane believed the marketing hype and trusted the large firm had their best interest at heart.
They met with an employee who was in the advisor position at the company. Rather than get the personal touch they expected from the marketing materials they’d seen, they quickly realized they were just “a number” walking through the door. They noticed there were just as many people waiting to meet with advisors as there were walking out of the meetings. Once they actually got their turn, they felt the advisor pushing them to move their money, instead of taking the time to understand their goals and desires.
Contrast that with what they got when they moved their money to our small boutique wealth management firm. These firms (like us) will limit the number of clients they work with so that you feel like you’re the only client we work with. We in the industry call it a small client/advisor ratio! The advisor you’ll often work with is the owner or partner in the small firm. George and Jane felt that working with me (CERTIFIED FINANCIAL PLANNER™ and owner of Heritage Investors) and my partner Jim, was a much better fit for them. We worked hard to gain an understanding of who they were and what they deal with daily. We focused on setting specific goals for them to meet, quantification points, a detailed timeline, and custom information detailed specifically for them.
That’s what it means to experience a personal approach. It’s important to have an advisor who understands exactly what your goals are. That way they can help you devise a plan and know how to walk you toward those goals. Their primary focus is helping you attain dreams in the most time-efficient way possible. It’s really tough to do that with someone who’s working with hundreds or maybe even thousands of people at one time. A large firm’s approach can often be like a call center but in an advisor form.
So when it comes to choosing a financial advisor, either Wall Street and Main Street, wouldn’t you rather choose someone that understands your lifestyle… someone that befriends you and actually follows what you are doing in your personal life? A financial professional that you know how they’re trying to raise their family and they understand the same of your family. The choice is yours.
Questions about boutique wealth management firms? Let’s talk.