Wirehouse vs Independent Advisor: Which is Right for You?

Is your financial advisor a wirehouse representative or an independent advisor? Are they considered a Registered Investment Advisor (RIA), or a broker-dealer? If you’re like many people, you may not be sure. With all the complex financial jargon, it can be difficult to tell, and it can be even more difficult to understand the implications of the many differences between them. Learn which is right for you, and feel more confident that you’re putting your financial future in the right hands.

The team at Good Life Financial Advisors of West Virginia always has your best interests in mind. We welcome you to contact us with any financial questions you may have, and one of our trusted team members will happily provide you with a clear and thorough answer. Reach out today!

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Wirehouses

Wirehouses are huge brokerage firms that share research and financial information among their many locations. This includes the “big four” national firms—Morgan Stanley, Merrill Lynch, UBS, and Wells Fargo. It also includes smaller regional firms, such as Janney Montgomery Scott or Ameriprise Financial. These firms are often referred to as “full-service brokerages,” and they operate as a corporation. Under the wirehouse model, clients’ assets are custodied at the wirehouse, and their advisors are typically considered employees of the wirehouse.

Wirehouses often have proprietary products and research for their advisors to recommend to clients.  They offer a wide range of these products, and advisors are typically incentivized to cross sell as many products as possible. The advantage of this, for the consumer, is that almost any financial products can be purchased through one advisor. The downside is that the products the advisor is selling must come from the wirehouse, even if a product outside of the company’s offerings would be the best fit for the client.

Independent Advisors

An independent advisor is, as the name implies, independently operated. This means the advisor is in charge of the business model, culture, location, etc. Unlike a wirehouse advisor, there is a considerable amount of flexibility in the offerings and pricing structure that fall under the category of independent advisor.

An independent advisor has the same licensing requirements as a wirehouse advisor and is required to maintain the same insurances. Independent advisors work for advisory firms such as LPL Financial in a manner very similar to a self-employed independent contractor. Independent advisors have greater freedom over whom they take on as clients, and also the manner in which they do business with them.

Broker-Dealers vs. Registered Investment Advisors (RIAs)

While Registered Investment Advisors and broker-dealers can both be found in wirehouse and independent models, there are a few key differentiators between the two.

An RIA charges their client a fee as a percentage of their assets under management (AUM), and they are held to a fiduciary standard by the Securities and Exchange Commission (SEC). All investments and transactions must always be in the client’s best interest.

Broker-dealers, on the other hand, charge a commission for each transaction. FINRA is responsible for regulating broker-dealers under the suitability standard, requiring each investment to be suitable for the investor at the time of purchase.

Because of these differentiators, advisors are required to obtain different licenses under each platform.

Keep in mind that some advisory firms force advisors to pick only one platform, while others allow for a hybrid model that incorporates the best of both worlds. Talk to an advisor at Good Life Financial Advisors of West Virginia today to discuss the differences and find out which platform best suits your needs.

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A Key Consideration

One of the most important things to consider when choosing which type of advisor to work with is how the advisor makes money. Broker-dealers make money by charging a commission for each transaction. If you make a limited number of transactions over time, this platform may be more advantageous than paying an ongoing fee over time.

RIAs charge fees based on AUM on an ongoing basis, regardless of the number of transactions.  Commissions can add up quickly, making this platform much more attractive to investors that want or need to transact more often. It all boils down to what is the best fit for your specific set of circumstances.

Which Type of Advisor is Best?

There’s no one-size-fits-all answer when determining what platform is right for you. Communication and transparency are extremely important in determining which platform and model best suit your specific needs. If you have any questions or concerns, you should always feel comfortable discussing them with your current advisor. Keep in mind that if they fail to answer your questions, or fail to answer your questions clearly, this should be a red flag. No matter which type of advisor you work with, you should have a relationship built on trust and communication. Contact us today at Good Life Financial Advisors of West Virginia to feel confident that you’re receiving honest, trustworthy advice on all of your financial needs.

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