Picking a Financial Advisor: Big or Small?

You made the decision to seek financial assistance. That’s great! Everyone can use help from time to time.

When selecting a financial advisor, consider the size of the firm they represent. There are the large, well-known companies and the small, independent shops. Is choosing an advisor at a boutique financial planning firm better than choosing one at a large company or one connected to a large company? How do you choose what type of firm to work with?

 

Highlights

• Small firms tend to be more person-centric, and large firms tend to focus on investments.
• There are common misconceptions about working with a large versus a small firm, particularly in terms of resources, outcomes, and safety.

 

What do you really want?

 

Before discussing the advantages and disadvantages, I encourage you to approach this with an open mind. Don’t limit yourself to preconceived notions and stories from older relatives.  The industry has undergone significant evolution since the 1980s, 1990s, and even the early 2000s.

When you first think about working with an advisor and firm, what comes to mind? What do you envision? — Why do you think you envisioned it this way? What feelings came up about other choices? What are some of the pros of the other options you thought of?

It takes careful consideration to find an advisor and a firm that is right for you. Have you considered what values you honored the last time you made a purchase? Can you apply these same values to selecting a firm and an advisor? Whether you prefer local small businesses or you like the convenience that a corporation can offer.

Diving In

 

Let’s examine the available options. There are the heavyweights of the industry that can easily have 15,000 or more advisors working for them. Or there’s the opposite end where you have a sole financial advisor working for themselves.  Then there is everything in between and firms that specialize in certain areas.

When it comes down to it, a smaller firm has the big benefit of creating a more personalized service. Corporations and their advisors tend to have a vast number of people behind the scenes streamlining things. They usually focus primarily on retirement and investments. You may not get the comprehensive and holistic approach you want. Advisors at large firms also tend to work with a significantly larger number of clients due to the efficiency that comes with scale. You’ll also need to consider that some large firms will have a team of financial advisors who take care of you, rather than a single go-to financial advisor.

The benefit of a large firm is that you can likely talk to someone any day of the week. If an advisor becomes sick, is on vacation, or passes away, there will be someone to take over your account almost seamlessly. With a smaller firm, you may not have the same advantage and will need to wait until the advisor returns to the office or a succession plan is implemented.

Large firms may have other arms of the business that may become a one-stop shop for you; this is convenient. For instance, you may be able to get a retirement plan and life insurance policy from the same company. A small firm would likely refer you to a trusted insurance agent. However, a small firm would have fewer biases in selecting an insurance policy provider.

Another difference between a large and small firm is that a large firm can create a retirement plan in as little as half an hour, and you’ll be on your way. For someone seeking a simpler financial plan, this option may be appealing.

More comprehensive and holistic financial firms, often small firms, will collect more information about you and may have additional meetings to set goals, present a plan, and implement it. This is a situation where the advisor can thoroughly assess a person’s entire situation and discuss their values and relationship with money. You will often spend more time with the advisor discussing your finances.

Smaller firms and their advisors will often have more flexibility to meet and adapt to your needs and create out-of-the-box financial plans for you.

 

Common Misconceptions

 

One common misconception is that larger firms have more resources and, therefore, are better. Until the early 1990s, big firms had more advantages, but with the advent of the Internet and the power of technology, things have changed. Smaller and medium-sized firms now have access to the same valuable resources as the big ones, whether it be investment analysis, planning software, marketing tools or economic data.

Two, larger firms can provide better outcomes than a sole advisor. This is not an accurate statement. Think about it this way. Not dogging on McDonald’s, but they have a ton of resources and are in practically every city. However, you won’t expect to find high-quality food there, even though they have many resources and are large. There may be a local burger restaurant that can give you an outstanding burger because they offer better ingredients and service. The same holds true for advisors and their firms.

Three, a corporation is a safer bet. You can trust them more with your money and information. While it is true that corporations tend to have been established for many years, it doesn’t make them any safer. When things do go wrong with a more prominent company, it is easier to clean things up after mishaps with well-funded lawyers, public relations, and marketing departments.

For instance, do you remember Wells Fargo advisors fraudulently opening up accounts under corporate pressure for profits. Or how the news broke when Fidelity was putting clients of their target date funds in riskier investments than what was appropriate so that they could inflate the performance over peers (Fidelity puts 6 million savers on risky path to retirement). The point of this is not to deter you from using a big firm, but to remind you that bad situations can arise at any size firm.

 

In summary

Special consideration should be taken when deciding to work with a financial advisor. Deciding on the firm size that your advisor will be at is only one part of the equation. There are several other considerations to consider when selecting an advisor. One of the different considerations is whether the advisor is a fiduciary. Learn more about fiduciary advisors here.

Ready to chat about your finances with a fiduciary, small/independent, and outdoor enthusiasts’ financial firm. We encourage you to make a small commitment to your financial future and schedule a discovery session.