Long ago, in a galaxy far away, bankers made loans, agents sold insurance and stockbrokers sold stocks. Everyone stuck to their turf.
In the 1980s, everything changed. Stockbrokers started selling insurance. Banks offered investing advice.
Insurance firms realized they had to compete, so they started offering investment products. They all had different cultures. Agents and advisors were caught in the middle.
The types of advisors available in the field began to change. Even people in and around the financial services community might hear, and use different terms to refer to advisors without knowing exactly how everyone else is defining those terms. Here’s how I definie six of the terms.
Who Am I to Write This Guide?
You might ask: What qualifies me to write about different types of financial advisors?
For starters, I was a financial advisor for 14 years of my 20-year career with a major financial services firm.
Since starting my own business in 2001, where I focus on training financial advisors in client acquisition, I’ve met or worked with advisors in all six types of firms listed. Some started in one category and transitioned to another because they felt it was a better fit.
Here’s another point you might raise: These are generalizations.
Not all firms in a category are the same. That’s right.
However, I think you can assign broad attributes to many firms in each category.
6 Types, Doing Similar Jobs
The general public might paint all financial advisors with the same brush, considering them commission salespeople.
There are actually six common types of advisors out there:
1. Wirehouse Financial Advisors – Think of a Roman galley. Very structured. Large offices in major cities. They usually have strict asset minimums, often in the $250,000+ range. They do business according to a defined model involving financial planning that identifies a risk tolerance which drives asset allocation. Few advisors do individual stock selection. They use mutual funds, ETFs and managed money, packaged in a recurring wrap fee structure.
Who gets hired? Second career types.
Training: Extensive training often lasts three to five years before graduation, often as team members, less frequently as sole practitioners.
Success: Based on the new accounts and new assets. You find your own clients.
Compensation: Based revenue generated. Fees from wrap structure repeat year after year.
Product Range: Almost everything including mortgages and insurance. They aren’t insurance or mortgage experts but they have specialists.
Collaboration: Refers to other professionals, expects referrals back.
Firm Risks: Recruiting. Many competitors prefer to let them do all that training, then hire them away with a large comp package.
2. Regionals and Super Regionals – An alternative between wirehouses and RIAs. They are often sought out by established advisors who don’t like the rigid wirehouse structure. They see themselves as relationship driven, not product driven.
Who gets hired? – Often it’s experienced advisors from wirehouses seeking individuality.
Training: If they hire experienced advisors, they have licenses. Some hire new people, training in branch and home office.
Success: Same as wirehouses. Business is often planning driven.
Compensation: Similar to wirehouses. Payouts may be higher.
Product Range: Extensive offering like wirehouses, yet advisors may have more choice in how they do business.
Collaboration: They encourage advisors do develop relationships with centers of influence (COIs).
Firm Risks: Losing advisors to competitive recruiting. Visibility in metro markets dominated by major banks and financial services firms.
3. Insurance Firm Financial Advisors – Usually advisors who specialize in insurance and also have the capability to do business in investment products. Firm often has a great reputation and market presence.
Who gets Hired: Second career people, firms do send representatives to job fairs and colleges.
Training: It varies by firm, yet training might be three months, then you go live.
Success: It’s an insurance company. You want to do extremely well in core products, specifically life and disability insurance.
Compensation: Its commission based. Product like life and disability insurance typically have a significantly higher first year commission, then much smaller residuals. Investment products like mutual funds and managed money have trails based on assets under management. Products bought from providers outside the firm’s umbrella often have significantly lower commission revenue.
Product Range: The firm’s reputations are built on insurance, yet they also have managed money, mutual funds and other investment products to meet the needs of their clients. Usually no mortgage business. Some advisors get Series 7 and licenses, allowing them to recommend listed securities.
Collaboration: It’s encouraged. Agents and advisors seek to build a network of referral sources like CPAs and attorneys. Unfortunately, the referral business is often one way.
Firm Risks: Retention can be low, both on the advisor and client side. Often agents find it difficult to keep in contact with many clients. Clients leave, buying similar products elsewhere.
4. Bank Financial Advisors – There are about 4,900+ commercial banks in the US. Many have financial advisors located in branches or on call. They offer investment services to be responsive to client needs. The bank’s primary business in lending products such as lines of credit and mortgages, often handled by lending officers.
Who gets Hired: Less strict compared to wirehouses. Less entrepreneurial. Banks are often structured environments.
Training: If the bank also owns a wirehouse firm, it’s probably the same training.
Success: They have numbers to hit. Many of the bank advisor’s clients start as current bank clients. They know when CD’s mature or cash is sitting idle.
Compensation: Small salary, lesser payout on commission or fee revenue for in branch advisors. Higher tier roams around, meeting larger prospects. Their comp is generally more commission based.
Product Range: Similar to wirehouse offerings, even at smaller banks because of clearing firm affiliation.
Collaboration: Often discouraged, since the bank may have a trust department or own an insurance agency.
Firm Risks: Since lots of business is generated in house, the bank must balance new revenue with lost revenue from the previous banking product.
5. Registered Investment Advisors – Experienced financial advisors who broke away from the wirehouses because they didn’t like the culture. Initial success is based on their ability to bring current clients when they go independent. Their chief selling point is the fiduciary relationship, vs. the suitability standard. They are often small, independent operations with an umbrella firm providing back office services.
Who gets Hired: Hiring is rare because they are often breakaways from wirehouses.
Training: They’ve been trained at their previous firm, yet the company providing the umbrella organization, compliance and clearing services often holds advisor conferences that include training.
Success: They’ve often brought their own clientele over, which they grow through client referrals. They often moved because they didn’t like the aggressive approach at the wirehouse firms.
Compensation: Often higher as an RIA because the overhead expenses are lower. They have effectively cut out the middleman, their previous parent company.
Product Range: They have a pretty complete range of investment products. They are less likely to offer mortgages and have less insurance capability than an insurance firm.
Collaboration: They see themselves as partners with local accountants and attorneys.
Firm Risks: Staying in business and regulatory compliance. They don’t have the famous name or the deep pockets of a bank or wirehouse firm to inspire client confidence.
6. Private Bankers – The US Marines of the investment world. Everyone aspires to imitate or join. Their corporate names often end with the word “Trust”. Many have banks as their parent. They look for a few clients who can turn over multiple millions immediately.
Who gets hired? In some cases they were previously employed elsewhere in the bank or have a background in law or accounting.
Training: They would be trained in the firm’s products and services, but they generally take on experienced people, not new hires without industry backgrounds.
Success: Like other bankers, they have goals to meet that can be pretty modest, measured in clients and assets. The risk of not hitting their numbers far outweighs the rewards of exceeding them. Many of their new clients come from referrals from the bank branches.
Compensation: Salary plus bonus. Their compensation is primarily driven by additional assets and new products purchased by existing and new clients.
Product Range: They have almost everything a client could need, although it often comes from one provider, the bank.
Collaboration: This is actively discouraged. Once a client comes on board, they build a wall around the client. As the client needs it, the firm will supply lending facilities, retirement planning, insurance and investments.
Firm Risks: The trust company is competing against wirehouse firms that have often structured themselves into HNW and UHNW divisions. Then it becomes a question of service and pricing to retain the client.
— Read The History of Financial Planningon ThinkAdvisor.