What Are The Main Differences Between Wirehouse Advisors And Independent Advisors?
Just as clients have to wade through an overwhelming amount of information to figure out who an advisor is, what they do, how they charge, and how they work, today’s financial advisors also have to understand the differences between various strategies, philosophies, and technologies in order to implement them in their practice. And in all of these things, the type of firm an advisor works for greatly impacts what they can offer their clients and the decisions they make on a daily basis. Let’s look at some of the differences between two primary types of firms and the advisors who work there: wirehouse advisors and independent broker-dealer advisors.
Wirehouse And Independent Defined
Merriam-Webster defines the term wirehouse as “a brokerage firm connected with its branch offices and correspondents by private leased telephone or telegraph wires,” (1) as they used to collect trade offers from their various branch offices using private telegraph lines. However, the more currently accurate definition of wirehouse firms is: vast, interconnected firms with national, or even global, business reach who share financial information, prices, and research within their network. (2) Examples would include many of the large financial institutions you see around town or on advertisements.
An independent advisor, on the other hand, is a financial advisor that has one or a few locations that are not overseen by a large investment bank and are free to invest and operate how they see fit.
What’s The Difference?
There are many factors that differentiate between these two types of advisors, and, as you will see, the differences are significant with regards to your practice as an advisor.
1. Employee Vs. Business Owner
If you are an employee of a wirehouse, you hand over control. The wirehouse determines the corporate culture, the business structure, and whether business is done regionally, nationally, or globally. The firm shares financial information, research, and prices. Your job is to grow their business. As an independent advisor, you get to determine these factors, giving you the opportunity to create a business based on your values and ideas. All the hard work and effort you put in are growing your own business and brand.
2. What You Offer
As a wirehouse advisor, you are required to use the proprietary products and services your firm dictates. You are sometimes pushed to cross-sell services from other divisions and have your hands tied when it comes to doing what’s best for your client. As an independent broker-dealer, you not only have freedom from quotas, but you have access to a wider breadth of solutions, meaning you can match services and products to your clients’ needs, not the other way around.
3. Payout And Expenses
Yes, being an independent advisor means you have the responsibility and liability to cover expenses such as office space, equipment, marketing, research, and benefits. But you also have the potential for a larger payout. In some cases, wirehouses can take up to a whopping 60% of your earnings, leaving you with less than half of what you should be taking home. Remaining independent allows you to retain payouts that can range from 85-92%, and can even go higher based on production level and other factors.
4. Your Brand’s Reputation Relies On You
When you are employed by a wirehouse, you become associated with that firm’s brand. This can be a benefit when the firm has a good reputation. But what if negative news emerges or something happens that is out of your control? This might reflect poorly on you and cause your clients to look elsewhere for their financial needs. As an independent firm, your reputation is reliant on you alone. You never have to worry about someone else damaging your business reputation or losing clients through no fault of your own.
5. The Client Factor
This is one of the most important differences to consider, since without the client, there is no business. At a wirehouse, your clients may be developing a relationship with you, but their business belongs to the firm. When you are independent, your client books are your personal assets; they build equity in your business. So, when you are ready to transition your company, you are able to transfer your clients to a trusted colleague, family member, or sell them. And when it comes to who you work with, wirehouse firms bring clients to you so you work with those the firm attracts. But what if you are passionate about working with a particular niche, like doctors, business owners, or multi-generational families? As an independent broker-dealer firm, you are not limited to clients with a certain amount of investable assets, and you can market your services to the clientele about whom you are most passionate.
You hear a lot about conflicts of interest in the financial world. When you work for a wirehouse, you essentially have two masters—your firm, which has production level quotas and other mandates, and your client, who has their own unique needs and may not desire or benefit best from those quotas and mandates. This puts you between a rock and a hard place. Being independent allows you to focus on what suits your clients best.
Take The Next Step
At Freedom Wealth Alliance, we are an independent firm that has built out all of the custom tools available to be even better than the larger firms. We are independent but not alone. We partner with LPL Financial to offer an immense platform of products to our clients. With a passion to serve you as if you are our only client, Freedom Wealth Alliance can free you from the burden of day-to-day business management, relieve your stress, provide you with the resources you need to serve your clients, and help you do what you want to do most—make your clients’ lives better. We invite you to take a look and see if Freedom Wealth Alliance is the right firm for you…and us. You can learn more about what sets us apart by visiting www.explorefreedomwealthalliance.com and contact us by emailing krozman@freedomwealthalliance.com or calling 262-798-7979.
About Freedom Wealth Alliance
Freedom Wealth Alliance is a Registered Investment Advisor providing a home and multiple affiliation options for financial advisors seeking business growth and/or succession planning, operational excellence, and turn-key placement. We created this firm to relieve your stress no matter the stage of your firm. We take the burden of running the business off your back, so you can spend your time doing what you do best and love the most. If that means spending more time with clients and prospects, you can. If that means spending more time with your family, just do it. Visit www.
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(1) https://www.merriam-webster.com/dictionary/wire%20house
(2) https://www.investopedia.com/terms/w/wire-house-broker.asp