The word independent can be defined as autonomous, unbound by another entities force, direction or will, or maybe and most importantly freedom. However in the context of your financial advisory relationship independence means much, far more. To learn just why the independent financial advisor model is really vital on your long lasting financial success, you need to know the difference in advisory models through the ground level up.
Depending on market research by Cerulli Associates, a marketplace polling and research firm, the channels of financial services models could be split up into roughly six major categories:
National Full Service Brokerage - These are typically firms including Merrill Lynch, Smith Barney, Morgan Stanley and Goldman Sachs. An economic advisor at one of those firms works best for their employer directly, but could provide financial advisor services then sell you insurance and investment products (maximizing profits and enriching company value). You will find approximately 70,000 "financial advisors" at national full service brokerage firms.
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Regional Full Service Brokerage - These are typically 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 operation model, however they're smaller in size and typically geographically anchored to service a reduced segment of investors. You will find approximately 15,000 "financial advisors" at these smaller regional full service brokerage firms.
Independent Broker-Dealers - These are typically firms such as LPL Financial (Linsco Private Ledger), Associated Securities Corp., Ameriprise and ING. An agent-dealer acts as either a sales organization selling consumers investment or insurance products OR to be a buyer of securities. Some broker-dealers act in capacities. There are approximately 100,000 "financial advisors" at independent broker-dealers.
Bank Brokerages - These are generally financial institutions who in addition offer financial advisor and investment management services to their banking customers. Banks for instance Wells Fargo, Bank of America and Citigroup offer these types of services and use roughly 15,000 "financial advisors".
Insurance Broker-Dealers - Firms like New York City Life, ING, AXA Advisors, Equitable, and Transamerica are involved in the exchange of insurance contracts and services from company to consumer. You will find roughly 35,000 "financial advisors" such firms.
Registered Investment Advisor Firms - You can find roughly 25,000 Registered Investment Advisor Firms. A Registered Investment Advisor (RIA) can be a firm registered directly along with the Securities and Exchange Commission (SEC) or their state securities licensing division. My firm Red Rock Wealth Management is undoubtedly an SEC Registered Investment Advisor Firm. Nearly 1 / 2 of all Registered Investment Advisor firms can also be utilizing or using a broker-dealer (at some level) however to facilitate investment and insurance transactions.
Taking off the RIA's with broker-dealer affiliations what this means is roughly 5% of "financial advisors" are solely inside the Registered Investment Advisor model.
The words "financial advisors" come in quotations as these firms hold their employees along to people within a financial advisor capacity, yet they might or might not be true financial advisors dependant upon their employment status. The truth is, they could be just facilitators of brokerage transactions for insurance and investment products.