How To Pick And What To Ask A Financial Advisor

Many consumer-focused technology services today, whether it’s low-cost trading platforms like Robinhood or the slew of online financial planning tools that have shown up in recent years, give individuals the impression that they can manage their own money.

To be sure, some people are capable of doing things on their own.
However, the majority of individual investors lack the necessary time and competence to pull it done.
Being a holistic wealth manager—someone who can successfully assist with estate planning, insurance, and investment management—is, after all, a full-time profession.

That’s why it’s essential to know what to look for in a professional advisor. Part of this comes down to their experience, skills, compliance record and, frankly, whether you like them personally.

Beyond that, though, you’ll want to know where they work. A wirehouse firm, a bank or an insurance company? Or perhaps they are independent.

Wirehouse Advisor

The term “wirehouse” goes back decades and has become harder to define in recent years, but generally, it refers to a large, often publicly traded institution. Some well-known examples are firms like Merrill Lynch, Morgan Stanley and UBS. Since these firms have near-infinite resources, their advisors often enjoy the latest technology, good back-office support and the most current equity research—all great things.

One downside, however, is that like most everyone, wirehouse advisors are usually employees. They have managers—who also have managers. That uphill flow sometimes creates a conflict: Advisors can be overly influenced by sales quotas and internal revenue targets when making recommendations for clients.

A Bank-Based Advisor

On the surface, it makes sense to consolidate your banking and wealth management relationships. If I have my checking and savings accounts in one place, I should have my investments there, too, right?

In some cases, this could be true. Not only is it arguably more convenient, but most banks or credit unions will provide benefits or slash some fees for customers that have both a retail and wealth management relationship.

At one time, bank-based programs were lacking. But they have improved over the last several years. Nonetheless, most of these institutions have similar limitations as the ones that plague wirehouses. Plus, there is no escaping that the primary focus for banks is, well, banking, which means the investment programs could still have gaps.

What’s more, if you need a loan, what is the chance your bank has the best terms? Naturally, a bank employee is unlikely to encourage you to go to a competitor to get a better rate on a mortgage or equity line of credit.

Insurance Agent

Though one might not immediately think of an insurance agent as able to help with wealth management, an increasing number of these professionals have begun to offer investors advice regarding a broader range of needs outside of just insurance. Moreover, no one should discount the importance of having the right kind of protection and risk management coverage.

Even so, regardless of how many investment licenses such professionals gather, they will often lead with insurance and annuity products, even when the better option for a client is something else. Not only that, but insurance agents are often captive to the companies that employ them. What this means is if you do need an insurance or annuity product, the agent is limited to recommending products manufactured by their employer.

Independent Advisor

While independent advisors are affiliated with a broker-dealer or a registered investment advisor (RIA), they are not employees of them. The primary purpose of those entities is to provide advisors the infrastructure they need to operate as business owners, including access to products and investments, as well as back-office, tech and compliance support.

The beauty of this model is that it reduces conflicts since advisors are not obligated to push proprietary products and services, nor do they have sales quotas. That tends to ensure that client needs will come first. At the end of the day, independent advisors are employed by the clients whom they serve.

Since independent advisors are business owners, it’s on them to make all sorts of decisions. Some may use this discretion to save on technology or keep their staffing cost low to boost margins.

However, as the financial services industry has evolved, an increasing number of independent advisors have access to tech offerings that are every bit as good as those of wirehouses, banks or insurance companies. What’s more, most can offer competitive insurance products and investment options—and refer banking solutions.

Advice On Advisors

Every advisor business model has strengths and weaknesses. While you can compare the differences between working with a wirehouse advisor, bank advisor, insurance agent and an independent advisor, the biggest takeaway should be clear: You probably need an advisor. The DIY approach is just too difficult for most.

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