13 Jan My advisor has left a large brokerage firm. Should I follow him?

Q. My financial advisor has left the large brokerage firm where I have several accounts, including annuities, an IRA and stocks and bonds. These total around $3 million. He will be establishing an independent firm with support from a company that serves a large number of independents and is asking me to move my accounts over to this new firm. I’ve been with him for several years, like him, trust him, and have done well with him. Still, I’m hesitant to follow him. I’m retired and depend on those investments. I like that they are held by a large, established firm. I worry about where those investments will be held in a much smaller firm. I also like to check on them online often although I’m generally okay with keeping things on autopilot, adjusting for balance one or twice a year. He says he can set his own fees and they will be lower, although that hasn’t been an issue in the past. I’m torn. Any thoughts or advice?
— Investor

A. There’s a lot to consider when you put your trust in a financial advisor.

And it sounds like you’ve had a productive and positive relationship with your advisor for a long time.

Your question starts with a look at Wall Street vs. Main Street, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

There are pros and cons to both.

An independent advisor won’t have the same name brand as a large Wall Street firm, she said.

“Large brokerage firms may have access to more products and proprietary products than an independent firm,” she said. “o Wall Street firms tend to have deep pockets, big budgets, staff to research investments, and money managers.”

Large publicly-held firms need to answer to shareholders so there may be pressure to promote in-house products or services even when those options may not be the best fit for a client, she said.

Turning to Main Street, Kane said independent advisors can offer a more personal touch.

“Your advisor is going out on his own and his personal reputation and livelihood is on the line,” she said. “His new practice will likely be smaller so he may have more time to dedicate to you.”

She said planning can become more of a focus for your advisor. Many independent advisors differentiate themselves with their in-depth plans which can lead to a more customized financial plan for you, she said.

Also, she said, independent advisors can be more agnostic to investments because they may not be tied to proprietary products.

You need to ask your advisor a lot of questions, she said.

Start with asking how his business model will change.

Will your advisor offer the same or additional services that he offers today?

“Independent advisors may be able to provide more comprehensive services including financial planning, tax planning, and investment management,” she said.

Will he continue to meet with you on a regular basis? What other changes does your advisor anticipate? Will your advisor’s investment philosophy change when he goes independent? In what ways?

“For example, he may like to work with models – groups of ETFs or mutual funds so his clients with similar objectives are in similar models,” she said. “This makes it easier to make changes and all clients are treated the same. Other advisors may want to create custom holdings for you.”

His philosophy may not change when he goes out on his own, so you may maintain a consistent approach to how you’re invested today, she said, noting it seems that you’ve been happy with the way he’s been managing your investments so far.

Ask your advisor how your fees will change? If he says that they’ll be lower, find out how and why.

Kane said there are different business models and how advisors make money. Here are a few:

With a fee-based model, advisors charge a percentage based on the assets that they manage also known as assets under management (AUM), Kane said. The fee is typically around 1% of the total assets under management.

Note that a fee-based planner can also sell you products that charge a commission.

“For example, if you need life insurance, long term care insurance, an annuity, an advisor earns a commission for selling you this product,” she said.

Then there’s the fee-only model.

These financial advisors charge by the hour, by the project, or charge a percentage of AUM if they manage your investments.

These types of planners may do the following:
o Charge a flat fee to create a financial plan.
o Charge an hourly rate to create a financial plan.
o Charge an hourly rate to meet with you.
o Charge a percentage of AUM. They can manage your investments and provide comprehensive financial planning.

“The main difference between this type of financial planner and a fee-based one is that the fee-only advisor won’t earn a commission selling you a product,” Kane said.

Then there are commission-based advisors, where you pay a commission each time your advisor trades on your behalf or in your account.

You brought up the question of where will your investments be housed.

“Just because your advisor is going independent doesn’t mean that he will house your investments in an unknown place,” she said.

For example, Charles Schwab is a custodian who holds retail investor accounts as well as over $1 billion in assets managed by independent advisors. There are others that you have likely heard of as well such as Pershing, she said.

You also mentioned checking your accounts online.

“You should be able to access your accounts through the custodian’s website,” she said. “Your advisor may also have the same or additional reporting tools available to you through the independent advisor with this move.”

So you need to talk to your financial advisor and ask a few more questions.

“It sounds like you’ve got a good relationship. It’s worth asking lots of questions to understand how his move can best support you and your goals or determine if you want to stay with the large brokerage firm,” Kane said.

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This story was originally published in January 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.