A guide to finding the right financial planning firm for you; what are the options, and why does it matter?

So, you’ve gotten to the point in your life where you’re ready to get some validation on your wise financial choices…or maybe the total opposite, and are terrified to have someone look under the hood on your financial situation. Either way, congratulations! This is a big step in adulting; getting your financial plan in order. Now, where do you go? Why would you pick one type of firm over another?

Below is a breakdown of the different types of financial planning firms out there, as well as the pros and cons to each of them. At the end of the day, the most important thing is to find a trusted financial planner who can effectively navigate the complexities of your personal financial situation; they get you. The advisor is often much more important than the brand behind them.

Independent firms (Registered Investment Advisors, “RIA’s”)

• What they are:

1. Human advisors who provide personalized financial guidance and prioritize clients’ best interests.
2. Cover everything: investments, estate planning, tax strategy, and more.
3. Independent fiduciaries (act in clients’ best interests, not only because it’s the right thing to do, but because they are legally bound to).
4. Independent financial planners focus on providing personalized advice and strategies for the individual’s or couple’s financial aspirations. They offer a hands-on approach, working closely with clients to develop a customized financial plan that aligns with their specific needs.

• Pros: 

1. Fiduciary Duty: Legally bound to act in clients’ best interests.
2. Holistic Approach: They often provide comprehensive financial planning and investment management.
3. Tailored Advice: they create customized strategies based on your goals.
4. Independence: They are not required (or bonused/incentivized) to sell you any financial product or instrument and have no proprietary products (no in-house products to offer).
5. Wide Investment Universe: No product bias; they can recommend what’s best.
6. Advisors have more flexibility and freedom than ones at Wirehouses because they are often not associated with a larger national corporation.

• Cons:

1. Smaller Brand Recognition: RIAs may not have the same name recognition.
2. Varied Services: Some RIAs specialize, so offerings can differ.
3. Contingency/succession planning: If a firm only has one advisor, ask what would happen if they were to retire or become very ill.
4. Account Minimums: Some RIAs require a minimum investment.
5. Subjective Bias: Advisors’ opinions may influence decisions.

• Fees:

1. Investment advisory fees: Often a fee paid based on Assets Under Management (“AUM”) which can range from <0.5%/year and up, an hourly rate, or a flat-fee. Fees are quoted based on scope of work. They are not allowed to receive commissions.

Wirehouse firm (large national firms)

• What they are:

1. Wirehouses are large financial institutions like Wells Fargo, Morgan Stanley, or Merrill Lynch, and many have a large national bank affiliation.
2. They offer a wide range of financial services, including investment advice, research, and proprietary products.
3. Financial advisors at wirehouses are typically employees of the firm.

• Pros:

1. Research and Resources: Access to in-house research and market insights.
2. Variety of services: Wirehouses provide a one-stop shop for various financial needs (investment management, financial planning, mortgage lending, credit cards, checking/savings).
3. Brand Recognition: Well-known names in the industry.

• Cons:

1. Conflicts of Interest: Advisors may push proprietary products or prioritize sales commissions if the corporate goals of the firm are pushing them.
2. Less Independence: Advisors operate within the firm’s guidelines.
3. Higher Costs: Fees and commissions can be higher than RIA’s or Robo-advisors.
4. Subjective Bias: Advisors’ opinions may influence decisions.

• Fees:

1. Investment advisory fees: Often an asset-based fee. This can typically range from 1+%/year and up. This fee is based on the total value of the assets managed in your account.
2. Brokerage fees: transaction-based pricing for brokerage services. You could pay commissions, sales loads, markups/markdowns, or other fees for each transaction executed by the client or Financial Advisor.

Robo-advisors (online advisors)

• What they are:

1. Robo-advisors use computer algorithms to manage investment portfolios.
2. Little human interaction—mostly automated.
3. Great for investment management without extensive financial planning.

• Pros:

1. Cost-Effective: Low fees
2. Easy Access: Convenient, especially for smaller portfolios.
3. Emotion-Free: No emotional biases; decisions based on data.

• Cons:

1. Limited Personalization: One-size-fits-all approach.
2. No Human Touch: Limited to no face-to-face advice or tailored strategies.
3. Not for Complex Situations: May struggle with intricate financial or tax planning needs.

• Fees:
• Investment advisory fees: Often an asset-based fee. This can typically range from 0.25% to 0.50%/year of assets managed.

Bottom line:

Think about what you want and value. What level of service and attention do you want? What are the fees and costs associated with the firm's services? How complex is your financial situation, and what are your long-term financial goals?

As said before, the advisor is often much more important than the brand behind them. Interview a few advisors, see how they treat you and how you feel after the conversation.

Here are a couple examples of why someone may pick one over another:

• Some people want to be BFF with their advisor, others want to just check in once a year or so. In these examples, the “BFF person” would probably want an independent advisor. The once-a-year person may want a wirehouse or robo-advisor.
• If you really value having a large national name behind your financial professional, then a wirehouse may be a great fit for you. If you want more of the the local small business vibe, an RIA may be a better fit.
• If you have intricate financial needs, such as high-net-worth or are a business owners, may require the specialized expertise and sophisticated strategies that RIA’s or Wirehouses provide. On the other hand, individuals with more straightforward financial situations may be happy with any of the options mentioned.

To summarize:

• Robo-Advisors: Simple, cost-effective, but less personalized and not for complex financial situations.
• Independent advisors (RIAs): Personalized, comprehensive, fiduciary (client’s best interest first), but smaller name recognition and team.
• Wirehouses: National name recognition, large bank resources, a one-stop shop for all financial needs, but often higher costs and limitations on advisors within a corporate structure.

Written by Laura Corbiani, Founder of Astraea Wealth Management LLC.

Astraea Wealth Management LLC is an independent financial planning firm; it provides a wide range of financial solutions under one roof. It offers services of:

• tax and retirement planning,
• dealing with the investment management (so you don’t have to),
• as well as coaching you around some of your internal money monologues (hear the “oh, you don’t have enough, you have to keep working forever”...but do you?), and lastly,
• asks you to talk about the hard stuff - like what you want your money to do for you (when you’re both above ground and under it).
  

Investment advisory services offered through Equita Financial Network, Inc. an investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Equita Financial Network also markets investment advisory services under the name, Astraea Wealth Management LLC.