Many fledgling financial advisers start out at large financial services companies. They undergo training, learn the ropes and act in a junior capacity under the guidance of seasoned pros. Then they quit and decide to launch their own independent practice.
Yet the business of providing financial advice keeps getting more complicated. It’s increasingly difficult for one person to possess all the advanced expertise required for comprehensive financial planning and portfolio management.
So is it better to seek out a solo adviser whom you like, trust and respect? Or does it make more sense to hire a larger firm with a team of experts who specialize in investment management, tax planning and other technical topics?
If you do business with a large financial services firm, you will probably work with a lead adviser who brings in experts as needed. You might view the lead adviser as the quarterback of your financial team, and you’ll rely on the resources the company can harness on your behalf.
Andy Sieg, president of Merrill Lynch Wealth Management, recently predicted that by 2030, all of Merrill’s advisers would be part of teams. Ten years ago, about 45% of its advisers were on teams; nowadays that figure is approaching 80%. “The clients simply expect and deserve more than a sole practitioner can practically provide,” Sieg said at an industry conference in April.
People with less than $1 million in investable assets (sometimes labeled the “mass affluent”) may not necessarily need a big company’s deep bench. Early-career earners might be more concerned with buying a first home, managing student-loan debt and funding a child’s education than capitalizing on a credit shelter trust or alternative investment strategies.
“As you go wealthier, you want a team to help you,” said Kenneth Correa, national business development executive at Merrill Lynch Wealth Management. “As more wealth is created, you’ll have more complexities so you’ll need more specialists and bigger teams.”
Smaller advisory firms also are embracing a team structure. But their goal isn’t necessarily to provide wide-ranging expertise under one roof for high-net-worth clients. Instead, these firms seek to scale their business to boost efficiency and pave the way for steady growth.
Mac Richards, a certified financial planner in Providence, R.I., says his firm uses the . “diamond teams” model. Created by Herbers & Co., an Austin, Tex.-based independent management consultancy for advisers, this organizational structure enhances employee performance and succession planning.
Richards and the firm’s chief investment officer discuss markets and investments with clients. For conversations that focus on financial planning, he teams with another adviser so the client builds relationships with two key contacts within the organization.
“We like ‘diamond teams’ because it lets us bounce ideas off each other,” Richards said. “It also provides a career path for new team members. And clients like it because at least one of us is always available.”
Potential tradeoffs
While conferring with teams gives clients more access to expertise, there are potential tradeoffs. The financial services giants don’t just want to trot out an adviser who drafts a customized financial plan, meets with you once or twice a year to tweak the plan and takes your frantic calls during market swoons.
They prefer to cultivate deeper relationships with wealthy people and their families — or young entrepreneurs or professionals on the road to riches — and cross-sell products across various platforms. Their aim is to wed you to the firm as a whole, not to one adviser who may decide to quit.
Teams can also introduce dysfunction and miscommunication to an otherwise harmonious relationship. Two advisers might interrupt each other when trying to explain their firm’s proprietary trading strategy to you. Or they can dish out confusing or contradictory information about how you should spend, save or invest.
For Correa, the benefits of teams outweigh any downside risk. He envisions a lead adviser as operating like a CEO to deliver what the client needs.
“You have one [adviser] as your relationship manager,” he said. “Call that person a generalist, your go-to person. Behind that person is your investment person, your banker, your loan officer. It’s hard to find one person who can be an expert in all these fields.”
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