In previous generations, financial advisors had few choices about what type of firm they could work for. While there were a number of different companies to choose from, the corporate environments among them were very similar, if not identical. Large, brand-name firms ruled the day with their recognizable logos and familiar slogans.
While many of these household-name companies still play major roles in the financial industry, a new breed of smaller financial services firms has emerged. These independent companies often provide a more comprehensive array of products and services than their larger competitors, along with a greater focus on relationships. Prospective advisors may have difficulty knowing which type of firm will suit them best, so read on to find out if you should swim with the big fish or find a nice small pond of your own.
Swimming with the Big Fish
What kind of firm you join will depend on what kind of advisor you hope to be. Below we’ve laid out some of the positive and negative attributes of this choice for you to consider.
Advisors who work for major financial conglomerates will generally enjoy a much greater level of support and training than independent advisors. New advisors that are hired by major wire house brokerage firms or insurance companies can expect to undergo a comprehensive training program that includes time to study for licensing, administration of all necessary insurance and securities exams, sales and product training, plus instruction for all necessary technical and administrative tasks.
Most newly minted advisors can also look for a certain level of marketing support, such as business cards, letterhead stationery and brand-name recognition, along with at least a shared office space. Also, many of the larger companies offer superior access to initial public offerings, bond inventories and other products that often attract new investors. However, these provisions come at a price for the advisor, who is usually required to meet steep production quotas within a fairly short time in order to remain employed. In fact, large companies have created business models that set up the majority of new hires to be the “fall guys” for the few that are able to make the grade.
The downside to larger firms is that advisors at these companies will generally receive less compensation for the same business as their independent counterparts. As stated above, there will also be more corporate red tape and rules to follow. In addition to the increased expectation for work flow and client base numbers, advisors will lose out on the time they spend with their clients, which could cause a disconnect between the two and take away the reason that many advisors join the profession in the first place.
Splashing in a Small Pond
Boutique firms that offer a more personalized (and possibly wider) range of products and services may be a better fit for some advisors.
What retail boutique firms lack in support and training, they can usually make up for in terms of compensation and autonomy.
In reality, more experienced advisors that may already have an established book of business tend to land at these firms because they do not need the same level of training or marketing support. Retail firms can also offer specialized services such as income, gift and/or estate tax return preparation, mortgages, and alternative investments or retirement plan programs that have been tailored to a specific demographic market (such as physicians).
The more intimate and relational atmosphere that these small companies provide often cannot be matched by the larger conglomerates. Most advisors that work in this environment are in business for themselves and not their broker-dealers. Therefore, they are in the business of marketing themselves, as opposed to a brand name. But while they may enjoy greater autonomy and a higher payout on commission, they must also bear the sole responsibility of running their businesses, or at least their practices. This means that the buck usually stops with them, as opposed to a branch manager or other mentor. But new or less experienced advisors may be able to find the perfect niche in one of these firms if they can find a mentor who believes in them and is willing to invest the time and effort into showing them the ropes.
Perhaps more importantly, working at a smaller firm can allow an advisor the opportunity to do more meaningful work for clients than simple asset gathering and management. Advisors who offer services that are outside the box, such as tax preparation, will soon learn much more about their clients’ personal lives than their finances. In many cases, the advisor can become a trusted confidant for the client in many matters that may extend beyond finances. This level of relationship will become invaluable when those clients have issues relating to large asset bases, such as business succession or estate planning issues that must be resolved.
As said above, there is not a lot of financial support in the smaller firms. They probably won’t support the advisor with marketing materials, business cards, license preparation or help pay for the mandatory upgrade courses for advisors. If planning and paying for all these necessary items sounds like too much of a headache, then the big leagues may be more for you.
How to Decide
The gap between retail firms and their corporate competitors is decreasing, as the independent broker-dealers that most smaller firms clear through continue to expand the base of products and services that retail firms can pass through to their clients.
Whether an advisor will fit in a specific work mold will depend to a large extent on their temperament. A few questions advisors should ask themselves include:
- Are you willing to deal with corporate politics?
- Can you handle having mandatory edicts handed down from above that could adversely affect your business?
- Would you miss the extra time spent with clients in order to meet a quota?
Ultimately, whether the advisor is more of a salesman or an entrepreneur could be a deciding factor. If an advisor is content to simply follow company policy, then the big-name companies can likely provide what they are looking for; if not, a smaller firm may be a better fit.
The Bottom Line
The choice between a larger or smaller company may be decided by an advisor’s experience level or by their temperament. While other factors can come into play as well, the type of business that the advisor would like to offer to their clients will be a critical factor in deciding which type of company is a better fit. Whatever you decide, make sure that if you decide to jump into the water, you know how to swim.