Independent Financial Advisors Vs. Large Advisory Firms: What’s the Difference?
Imagine you are getting ready for a road trip across the country. You have got two choices. You can contact a small independent guide who’s familiar with every unexplored gem along the route. Or, you can book a tour with a well-known travel company that offers a pre-planned schedule. Both options will get you to your dream destinations, but the journey could differ.
Picking a financial advisor can be like that. Maybe? Should you go for a personalized approach from an independent financial advisor? Or should you opt for the wide-ranging resources of a large advisory firm? Let us look at the differences to help you make this crucial decision.
Why am I writing about this? Technology practitioners in Wealth Management (e.g. Fintech consultants like yours truly) need to pay attention to how end customers see things. Also you can read a general view of the overlooked benefits of hiring a financial advisors here.
Difference Between Independent Financial Advisors and Large Advisory Firms
When choosing between an independent financial advisor and a large advisory firm, it’s essential to compare them on various parameters – services, products, resources, client focus, cost and industry growth trends.
- Advisory model
Independent financial advisors operate autonomously with various fee models such as commission-based, fee-only advisory and hybrid models. With many of them operating on the fee-based fiduciary advisory model, they are obliged to act in the best interest of the investors.
Large advisory firms are established brands or companies with a global reputation, which instantly instil confidence among investors seeking comprehensive advisory services.
- Service type
Generally, independent financial advisors offer highly personalized advice based on various client needs and keep a strong client focus without any restraints on corporate policies. Some of the independent advisors focus only on niches, such as physicians-only advisory services. However, they may not be able to provide the comprehensive services that big asset management can offer.
With their large infrastructure and presence in the market, large advisory firms like Fidelity, JP Morgan Asset Management, Blackrock and State Street Global Advisors can offer a multitude of advisory services under one roof for their client base.
- Resources
Independent financial advisors may not have access to extensive resources as compared to large advisory firms. Reputed advisory firms generally have in-house research analysts, huge resources and specialists to advise clients in complex situations.
However, with the rising trend of wealthtech solutions, independent financial advisors are also equipped with various technological tools such as AI-powered portfolio management tools, sentiment analysis, real-time analysis, predictive analysis, and continuous review and monitoring tools to help their clients in complex situations. Traditional advisory firms also heavily invest in technology and add innovative layers to the wealth management space.
- Product
Generally, independent financial advisors have access to a wide range of financial products. They can offer product flexibility to clients, and diversify the highly personalized portfolio with their unbiased recommendations.
Though large advisory firms offer a wide range of services, build a solid portfolio for clients and manage risk by diversification, they may sometimes have to restrict themselves to in-house products. This could lead to biased recommendations and may not put the client’s interest ahead.
- Cost
The cost of financial advisory services from independent financial advisors can be relatively lower than that of larger advisory firms. However, the cost may vary based on the fee structure. For example, one of the well-known fiduciary financial advisors – Facet, offers a unique fee structure for their clients. They charge an annual flat fee ranging from $2000 to $6000 depending on the plan (core/plus/complete) chosen by the client1. On the other hand, most of the large financial advisory firms charge 0.5% to 1.5% of assets as fees, while their years of track record and reputation speak for them. There are also minimums – not all customers qualify for all the services.
- Suitability
Scenario 1: Let us imagine you are a small business owner. You are seeking a tailored investment solution for your irregular income without any corporate bias while planning for all your future goals. Maybe an independent financial advisor might make more sense? They could design a flexible and highly personalized solution, integrating tax strategies and savings for your golden years of life. They can perfectly align financial planning solutions with your unique financial needs.
Scenario 2: Let us assume you are a busy executive who needs comprehensive financial services, including wealth management, tax strategies, estate management, inheritance planning and more. In this scenario, large advisory firms might be best suited to provide you with all-inclusive financial solutions with their expert teams, robust resources, and worldwide presence.
Ultimately, the choice boils down to the complexity of your goals, preferences, service needs and personal comfort with the advisor’s working model.
Growth Trends in the Financial Advisory Landscape2
There is a notable shift towards fiduciary advisory services offered by independent advisors among individual investors. Here are some of the key trends highlighted by ‘Investment Advisors Association’:
- More than 24 million individuals associated with investment advisors over the last 6 years, with a 12.8% increase in the number of individuals per year.
- While large advisory firms have grown substantially over the years with innovations and adaptation of newer technologies, increasing the number of independent advisors is a growing trend in the industry. Industry veterans increasingly leave larger advisory firms to seek greater autonomy and establish their own practices.
- Number of registered investment advisors reached a record high of 15,396 in the year 2023.
To conclude, both independent financial advisors and large advisory firms have a lot to offer to their clients, and both can safeguard client’s money. However, there are trade-offs, too. Choosing between the two depends on your investment goal, complexity, affordability and personal preference. Understanding the difference between the two can help you make a rational choice.
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