Will a big firm managing your money boost your odds of financial success?

By Morey Stettner

Bigger may not be better – or it may be just what you need – but there are other factors

If you’re overwhelmed by the choices in the cereal aisle, try shopping for a financial adviser. There are more than 330,000 of them in the U.S. To find the right one for you, assess their background, professional education and fee structure.

Also, consider the size of their firm. Bigger may not be better – or it may be just what you need.

Many advisers work for large financial-services companies. These “wealth managers” provide investment management as well as financial planning. They may encourage new clients to transfer all their assets to their company. And they may or may not serve as fiduciaries legally bound to act in your best interests.

Many advisers (called “registered investment advisers” or RIAs) work for independent, privately held firms of various sizes – from national or regional money-management firms with dozens of financial planners to midsize or small outfits with a handful of advisers. Over the last decade, an increasing number of advisers have launched solo practices.

Regardless of the firm size, make sure that any adviser you’re thinking of hiring is a fiduciary. An easy way to confirm this is to see if they hold the certified financial planner (CFP) designation; CFPs commit to following a code of ethics and act as fiduciaries.

From there, weigh the pros and cons of the size of the adviser’s firm. Bigger companies can assemble a wider range of in-house expertise to meet your varied financial needs, while smaller practices can provide more personalized, responsive service.

“With a larger firm, you’ll get more access to resources, more advanced technology and more specialists” on alternative investments, estate planning, tax planning and other technical areas, says Bobbi Rebell, a certified financial planner and personal finance expert at CardRates.com.

Advisers in smaller firms can offer more customized services and focus on holistic aspects of financial planning. This includes tailoring a financial plan for you that encompasses saving and spending goals, retirement planning, philanthropic priorities and other money-related issues.

“Advisers [at smaller firms] can adapt more quickly if you have life changes, like selling a family business,” Rebell says. “They might also be more creative in managing your investments because they don’t need to toe the company line and follow a chief investment officer’s parameters. They have more freedom.”

She adds that larger firms have “more guardrails and checks and balances” that govern how they invest client assets. These controls “can be good or bad,” she says, depending on the firm’s prowess in portfolio management.

Some bigger firms invest in aggressive advertising and brand-building through multifaceted marketing campaigns.

But just because a company features its chief executive in ads or excels in social-media marketing or search engine optimization doesn’t mean it’s right for you.

“At some larger firms, you can get access to expertise,” says Luke Dean, a professor of financial planning at Utah Valley University in Orem, Utah. “If you have a more complicated situation, such as certain types of stock options or transferring a business from one generation to the next, I’d lean toward a bigger firm. But don’t fall prey to ‘If I’ve heard of them, they must be trustworthy.'”

Advisers employed by large companies with hefty advertising budgets may feel pressure to attract client assets. The more money they bring in, the more revenue the company generates from asset-under-management fees to pay for more marketing.

On the other hand, a smaller practice may lack a succession plan. If you work with a solo adviser who quits, retires or dies, you may race to fill the void. Larger firms can hand you off to another planner.

“The best solo proprietors have arrangements with other advisers so that if the unthinkable happens and they’re hit by a bus, the other adviser will take over,” says Knut Rostad, founder of the Institute for the Fiduciary Standard in McLean, Va. “There are a lot of talented, highly qualified sole practitioners out there who are fee-only planners,” meaning they charge fees for their services and do not earn commission by selling financial products.

You’re particularly well suited to hire a small firm – or a solo adviser – if you’re a do-it-yourself investor who just needs financial planning without the investment management piece. An increasing number of younger advisers run a virtual practice where you’ll rarely if ever meet them in person.

Conversely, you may feel more comfortable hiring an adviser who works in a plush office with lots of support staff. If you’re that kind of person, bigger is probably better.

More: The ‘Trump bump’ added $75,000 to my $1.3 million portfolio. I’m 39. Should I retire early and move to Europe?

Also read: ‘What options do I have?’ I have $150K and wondering if there is any possible way to make a 3%-5% return on that money

-Morey Stettner

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  11-14-24 0745ET
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