The word independent can be described as autonomous, unbound by another entity’s force, direction or will, or perhaps and most importantly freedom. But in the context of your financial advisory relationship independence means much, much more.
To understand just why the independent financial advisor model is so vital to your long term financial success, you must understand the difference in advisory models from the ground level up. In fact, they may be nothing more than facilitators of brokerage transactions for insurance and investment products.
According to a survey by Cerulli Associates, an industry polling and research firm, the channels of financial services models can be broken down into roughly six major categories:
National Full Service Brokerage
These are firms such as Merrill Lynch, Smith Barney, Morgan Stanley, and Goldman Sachs. A financial advisor at one of these Retail Solutions Advisors firms works for their employer directly, but can provide financial advisory services and sell you insurance and investment products maximizing profits and enriching company value.
There are approximately 70,000 financial advisors at national full-service brokerage firms. Nearly half of all Registered Investment Advisor firms are also working with or through a broker-dealer at some level however to facilitate investment and insurance transactions.
Regional Full Service Brokerage
These are smaller geographically specific brokerage firms such as Robert W. Baird, Edward Jones, and AG Edwards. Regional brokerage firms are nearly identical to their national counterparts in the business model, however, they’re smaller in size and typically geographically anchored to service a smaller segment of investors.
There are approximately 15,000 financial advisors at these smaller regional full-service brokerage firms. These are banking institutions that also offer financial advice and investment management services to their banking customers.
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These are firms such as LPL Financial Associated Securities Corp., Ameriprise, and ING. A broker-dealer acts as either a sales organization selling consumers investment and/or insurance products OR as a buyer of securities. Some broker-dealers act in both capacities. There are approximately financial advisors at independent broker-dealers. Banks such as Wells Fargo, Bank of America and
Citigroup offers these services and employs roughly 15,000 financial advisors. The words financial advisors are in quotations because these firms hold their employees out to the public in a financial advisory capacity, yet they may or may not be true financial advisors depending on their employment status.