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How to Choose a Financial Advisor

How to Choose a Financial Advisor

July 10, 2020
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Choosing the proper financial advisor is an important consideration for anyone who seeks to maximize their wealth. As is often the case with important matters, paralysis by analysis can rear its ugly head. While there are a wide array of firms and affiliations, advisors fall into two main structures—independent business owners or employee-based advisors. While both structures offer their own unique pros and cons, clients are increasingly choosing to work with independent advisors. Today, we’re going to share some useful information to help guide you on how to choose a financial advisor. 

Speak with a truly Independent Financial Advisor at Good Life Financial Advisors of NOVA today! 

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Benefits of an Independent Advisor

Imagine you’re on vacation in a tropical island paradise. There’s a wide assortment of fun activities to partake in—swimming, fishing, jet skis, scuba diving, and more. Now, imagine instead of creating your own schedule and choosing your own activities, you have to agree to do the same things as everyone else on the island. Everyone goes swimming, but no one gets to go scuba diving, or vice versa. Does that sound enticing? Of course not!

 If you’re spending your hard-earned money on a vacation, you want to choose your own itinerary. Well, the same type of mindset applies to financial advisors. Here are a few of the benefits of working with an independent advisor:

Full Ownership

An employee-based financial advisor may be a wirehouse advisor, a bank-based advisor, or an employee of a nationally branded franchise organization, to name just a few. Regardless of which of these that advisor may fall under; they ultimately work under the umbrella of the main firm.

Big decisions are often handed down from on high, and advisors don’t get to call all the shots with their clients. In fact, they may not even be able to choose their own clients at all! Clients may be “transitioned away” to a new advisor once they attain or fall a certain level. There is often a fixed minimum or maximum asset level one of these advisors can work with, and they don’t get a say in the matter. The bottom line is that the firm is in control, not the advisor, and most importantly, not the client.

With an independent business owner, advisor control is firmly where it belongs—in the hands of the client and the advisor. Independent advisors choose when they work, where they work, and who they choose to work with. While many independent advisors choose to have the backing of a large firm to provide them tools, resources, and compliance, the day-to-day decisions are between the client and the advisor. An independent financial advisor is running a business of their own, and they work for their clients. An employee-based advisor works for their manager and the firm they work for.

No Proprietary Products

Oftentimes, employee-based advisors face an immediate conflict of interest. If an advisor works in a bank and they see a need for a banking product for a client, they’re limited to recommending the products offered by the bank that employs them. Some of the well-known national franchise-based organizations also manufacture their own proprietary products such as life insurance and annuities. Advisors affiliated with or employed by these firms may be limited or highly encouraged to recommend their own firm’s products. 

However, a truly independent advisor isn’t beholden to proprietary products. They have the ability to search far and wide for financial products to help their clients pursue their goals.

Open Communication and Individual Partnerships   

Independent advisors build their own business models and establish their own partnerships with clients. Unlike employee-based advisors, they don’t have to worry about complying with “brand standards” in written communications. Even something as simple as a website is controlled by the big firm with an employee-based advisor. An independent advisor is able to reach out to their clients with personalized timely emails, blog writings, social media posts, etc. This ability becomes even more important in times of crisis.

Capacity for New Clients

When an advisor is an employee, they don’t get to decide how many, or more importantly, how few clients they work with. Oftentimes, employee-based advisors find themselves with more clients than they can reasonably serve as the employing franchise, wirehouse, or bank seeks to maximize the bottom line. Some firms take the opposite view and minimize the number of clients an advisor can work with by having rigid fixed minimum amounts and a fixed maximum number of clients an advisor can work with.  

Independent advisors are under no such mandates. Independent advisors can open their books to a diverse group of clients, ranging from wealthy business owners to younger clients just starting out, and trying to save as much as they can for retirement. Limitations on quantity and type of client do not exist for independent advisors, who are free to grow their businesses as much (or as little) as they desire.

Defined Process

Independent advisors are able to define the process by which they work with clients.  Oftentimes, employee-based advisors have this process defined for them. Usually, this process is designed to maximize profits for the employing organization, and may not be the right process for every client. For example, some firms really push annual fee-based financial planning on top of their other fees. While this may be beneficial for some clients, it is usually not necessary for all clients. A truly independent financial advisor who owns their business gets to decide whether or not something like this is the right thing for a client without pressure from their employer or firm.

Work with an Independent Financial Advisor

We hope that this article has helped you understand the difference between an advisor who is an employee and an advisor who is truly an independent business owner. If you’d like to work with an experienced truly independent financial advisor, speak with a financial advisor at Good Life Financial Advisors of NOVA today! 

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