What comes to mind when you think about managing your money? Many people think of Wall Street. They picture the giant investment firms of New York City, looming large in their skyscrapers. They hear the hub-bub of a packed lobby and busy brokers racing from one client to the next. For some people that image is exciting. But for most people across America, it’s simply overwhelming.
You might be drawn to certain parts of this picture of high finance. Maybe it seems like big investment firms can do more than small enterprises, but you just aren’t comfortable working with a corporation that large. Luckily, it isn’t your only option. There are also independent financial advisors.
You can find great service in your own hometown if you opt to work with an independent financial advisor. These professionals often have capabilities similar to investment firms but take a more personalized approach to managing your finances. As you might imagine, there are some big differences between these two business models. In this blog we compare Main Street vs Wall Street side-by-side so you have a better idea of which might be right for you.
You can imagine the financial industry as divided into two types of businesses: product-focused and service-oriented.
Big brokerage firms tend to be product-focused, which is helpful if you know exactly what you want. A few examples are companies like Wells Fargo, Goldman Sachs, and Edward Jones. The brokers at these firms are typically compensated by selling you one of the products available on their platform. They are held to the lower standard of “suitability,” which pretty much means as long as you can handle the risk, they can sell you the product. Their goal is often to sell a product and move on.
Your local financial advisor, however, is service oriented. As a Registered Investment Advisor (RIA), they are legally required to act in your best interest, not sell you products. They work as independent businesses, giving them greater access to services from a much larger variety of major companies. A financial advisor considers your full financial landscape before suggesting strategies to ensure you’re on the best path to success.
The way you pay can make a big difference to the overall cost of financial services.
Broker-dealers are typically commission-based, sometimes with additional fees, meaning agents earn their income based on how many products they sell. This cost structure contributes to higher prices in the product-focused world and creates a conflict of interest for brokers to be more focused on selling products than guiding your investment portfolio.
Advisory firms operate on a fee-based structure, and no commissions. They don’t even have the licenses to sell you any investment products. It’s simple. You’ll know exactly the fee for each service and avoid any surprise price tags. At Clear Money Path, the goal of our cost structure is to save clients 10-20% versus any competitors, and we often save you even more.
Your advisor’s service mission is to manage your portfolio and get you closer to your goals. They don’t make money from product sales, which allows them to be objective when recommending products and planning your next move.
Investing can be stressful, which is why you deserve an answer to your financial questions the same day. Big investment firms rely on chat bots, online forms, and robot answering systems to manage client concerns. When you have a complex issue this can be frustrating. You need a person on the other end of the line who can evaluate the situation and provide advice.
With a local financial advisor, you get the benefits of big firm access expertise with the dedicated attention of a small staff. This commitment to clients can help you build trust in your financial advisor because you know they will always be ready to answer your questions. You don’t have to worry about talking to a robot or waiting weeks to get advice. You are your advisor’s top priority.
Does location matter?
In our new virtual world, you might be considering starting a financial relationship online. Maybe you’ve found a financial advisor in another city who looks like a good fit for you or shares your personal values. Maybe you’ve recently moved to another state but don’t want to start over with someone new. Either way, a virtual relationship with a financial advisor is entirely up to you.
Generally, it’s advised to do business in-person. Face-to-face interactions can help to build trust with your advisor and gives you more opportunities to ask questions and learn about different financial strategies. Especially if you’re meeting an advisor for the first time, there can be benefits to doing business the old fashioned way.
That being said, some people are perfectly comfortable conducting all their business online. The most important thing is to find someone you trust who shares your value system. That’s how you know they’ll truly be able to work with your best interest in mind. Stick with advisors who you know will work hard for you and choose situations (virtual or in-person) that you’re comfortable with.
Why Use a Financial Advisor?
Some people think they only need a financial advisor if they’re rich. The truth is everyone could benefit from another pair of eyes on their finances.
Financial advisors bring their expertise to every situation. They help you make sure you’re preparing for a stable life now and in the future. They can take your financial situation into account and help you develop different strategies to put your money to work for you.
The main benefit of having a financial advisor, though, is that they’ll do all the heavy lifting. It’s one thing to know what you want to do with your money, it’s another to take the time to invest it and manage your portfolio. It’s a full-time job! Having an advisor can take that stress off your plate. Your financial advisor will act in your best interest to manage investments and savings while you focus on earning income.
One common objection we hear to hiring a financial advisor is that someone already has a great relationship with a big investment firm. They know their point of contact and trust their guidance.
If you have a trusting relationship with a broker-dealer, that’s great! It can still be good to get a second opinion, though. Just like if your long-time doctor diagnosed you with a serious illness, you’d seek a second opinion from a specialist to be sure. A financial advisor often has more detailed expertise when it comes to managing finances as a whole and not just individual purchase decisions. In some cases, they might be able to offer more informed advice than your broker-dealer.
That being said, it’s okay to work with both. You might prefer to use big brokers for product purchases and your financial advisor for advice and planning. It all depends on your needs and goals.
Another objection is that people often think big investment firms have more options and resources than small advisory firms. This simply isn’t true. Big investment firms may serve large client accounts, but don’t be surprised if your local advisor has greater access to investment strategies across the industry. Independent advisors don’t have to navigate the conflicts of interest (and fee sharing) inherent to brokerage firms, so they often have access to more products and strategies, but for a fraction of the cost.
Big investment firms are often limited in the scope of their services by their corporate structures. The laws and regulations for businesses their size make it difficult to offer certain smaller options. An advisory firm has much more flexibility when it comes to managing your finances. It has the option to partner with large companies and offer the same services as big brokers, yet they can find cost-saving opportunities specific to your situation.
What This Means For You
Big investment firms can be a great resource in the right circumstances, but they aren’t your only option. A Registered Investment Advisor can not only help you manage your portfolio, they can help you create a stable financial plan that fits your needs and lifestyle. Because they operate in a fee-based cost structure, they’re able to give objective advice about what investments would best suit you. Overall, your RIA is a long-term financial partner with your best interest at heart.
Here at Clear Money Path, we’re proud to provide personalized financial services to our community. If you’re interested in partnering with us or have questions about your finances, schedule a free consultation today!
Information presented does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information on products and services. This information should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein.
Information presented is believed to be factual and up-to-date and was obtained from sources known to be reliable. It should not be regarded as a complete analysis of the subjects discussed.
All expressions of opinion reflect the judgment of the author as of the date of presentation and are subject to change.Clear Money Path is registered as an investment adviser with the state of Missouri. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.