Finding The Right Fit For You – Forbes Advisor

Finding the right financial advisor can be daunting, but understanding the differences and strengths of each firm can help you find one that fosters a successful partnership and aligns with your financial goals. With so many firms to choose from, it’s important to carefully consider which type of advisor best matches your needs and personal values.

Here’s a look at seven types of financial advisory firms—each offering specialized services—to help you decide which may be best for you and your assets.

1. Independent Broker-Dealers

Independent broker-dealers (IBDs) offer investment services and products across the country, similar to larger full-service brokerages. Unlike larger brokerages, IBD financial advisors typically operate out of smaller offices or branches, and their networks can include thousands of advisors. This means they typically have a larger number of financial professionals, making it easier to find an advisor who’s readily available to work with you.

Since IBD financial advisors are independent contractors, they tend to have more control over how they run their business, including covering their own expenses like office space, staff and equipment. In exchange for taking on these costs, IBD advisors may keep a higher percentage of their earnings, which could give you room to negotiate lower advisory fees and commissions when purchasing investment products.

IBDs generally focus on offering packaged financial products, like mutual funds and annuities, designed to reach a broader range of investors. But while these products may be easier to package and market to clients, they may not necessarily offer the best range of investment options.

2. Wirehouses

Wirehouses are generally financial firms that cater to wealthy clients. They offer a wide range of services—such as stock and bond sales, investment banking and advisory services—and operate nationwide with a broad network of financial advisors and branches.

Known for their comprehensive offerings, wirehouses offer many options for investing and managing wealth, and they often have access to complex financial products that may not be available or suitable for most investors. Instead of earning commissions on each transaction, wirehouses typically charge a fee based on the assets they manage. This fee-based model is designed to align the advisor’s success with your financial goals, as advisors will earn more when your investments grow.

3. Bank Brokerages

Bank brokerages are financial service centers located within bank branches, offering investment advice and products like mutual funds, annuities and other packaged investments. One key benefit is convenience—having your investment and bank accounts in the same place can make transferring funds easier. However, bank brokerages may offer fewer investment options and can charge commissions that benefit the bank and its affiliates.

Not all bank-affiliated investment services fall under this category. For instance, some larger financial institutions may have separate, affiliated brokerages that manage their investment accounts.

4. Regional Broker-Dealers

Regional broker-dealers are specialized financial firms that offer various investment services similar to large national brokers but focus on specific geographic regions. They may have many branches in a particular area, fostering deep local ties and a strong community presence.

Their financial advisors generally offer a wide range of non-proprietary products, meaning they could be less likely to push their own investment offerings and may provide more independent, client-focused advice.

These firms often make money by earning commissions when you buy or sell investments rather than charging a percentage fee based on your assets. This commission-based structure could lead to recommendations that generate higher commissions, which might not always be the most suitable products for your specific needs and objectives.

5. Insurance Broker-Dealers

Insurance broker-dealers are firms with a widespread presence, primarily focused on selling proprietary insurance products, such as life insurance. They may also offer investment products and can often collaborate with third-party sub-advisors to expand their offerings and provide a broader range of investment advice.

As the financial industry evolves, many insurance broker-dealers are shifting toward models similar to independent broker-dealers, offering a mix of their own products and non-proprietary asset management services.

Advisors at these firms, like those at regional broker-dealers, typically earn revenue through commissions on the purchase and sale of investment products, which can include upfront and ongoing fees. This means they may be incentivized to recommend products that pay them the highest commissions rather than products that are most suitable to your specific needs.

6. Registered Investment Advisors (RIAs)

Registered investment advisors (RIAs) are independent firms that provide tailored and personalized investment advice. They’re registered with the Securities and Exchange Commission (SEC) or a state securities regulatory agency and are required to adhere to a fiduciary standard, meaning they must always act in your best interest.

RIAs provide a wide range of services tailored to your financial situation. Some specialize in financial planning, developing strategies for budgeting and investments that align with your life goals. Others also provide retirement planning to ensure you’re prepared for your golden years with sustainable income strategies, along with estate planning to help you decide how your assets will be distributed.

RIAs may also offer tax planning to help minimize liabilities, education funding advice for future schooling expenses, insurance planning for risk management and investment management to help maintain and grow your wealth.

Their fees can be based on either a small percentage of the assets they manage for you or charged as a fixed or hourly rate. This fee-only structure helps to minimize conflicts of interest since their compensation isn’t tied to product sales or commissions. However, RIAs that charge a percentage based on assets under management might encourage clients to deposit more funds, which can increase their fees.

Most RIAs don’t issue or manage their own investment products, so they can focus on recommending the best options available in the market. This helps ensure that their advice best aligns with your unique financial goals rather than potentially being pushed toward in-house products that may not be the best option.

7. Dually Registered Advisors

Dually registered advisors, or hybrid RIAs, are registered as independent RIAs and broker-dealers with the Financial Industry Regulatory Authority (FINRA). This dual registration allows them to offer a mix of fee-based advisory services and commission-based product sales. The advantage of this model is often its flexibility, giving advisors the ability to provide a wide range of products and services, which can be helpful if you have diverse financial needs.

While dually registered advisors are required to uphold the fiduciary standard when offering advisory services, they can also earn commissions when acting as brokers. This flexibility can allow them to adapt their approach based on your specific needs.

For example, they might manage a portfolio for a fee under their RIA registration while offering insurance products for a commission under their broker-dealer registration. It’s important to know that the fiduciary standard only applies when the advisor is acting as an RIA—not as a broker-dealer. This can create confusion about whether the advisor is prioritizing your interests or their own or vice versa.

If you’re considering a dually registered advisor, you should first understand their fee structure and how they’re compensated for the various services they provide.

Navigating Your Financial Future With Confidence

According to a Northwestern Mutual 2023 study, financial advisors are the most dependable source for financial advice, eclipsing family, friends, news outlets and social media platforms. The study found that having a financial advisor can boost confidence even though only 37% of Americans work with one—those with advisors feel 31% more confident about handling unplanned costs, 29% more prepared for retirement and 28% more secure about their long-term financial stability.

When looking for a financial advisor, think about your financial goals and how the financial advisor’s compensation model may influence their recommendations. For example, RIAs and hybrid firms that prioritize fiduciary advice may offer strong value to investors who want unbiased financial planning and investment management.

Remember to ask questions and fully understand their fees and standards. This partnership should make you feel confident and secure about your financial decisions. And if you need additional support finding the right financial advisory firm, consider a platform like Datalign Advisory, which can make the search easier by matching you with a vetted advisor.