Personal Finance

It's small vs. big when picking an advisor

Key Points
  • Professionals in the advice business say the differences can matter to consumers.
  • Larger firms tend to focus on investments; smaller ones may take a more holistic approach.
  • The relationship and range of services can vary.

When it comes to choosing a financial advisor, one consideration is whether to go with someone at a large, well-branded company or a small shop. Does the size of the firm really make a difference if you like the person?

It sure can, according to industry insiders.

Advisors who have worked at both small and large companies say that, in general, the differences often boil down to the depth of the relationship and range of services offered.

John Wildgoose | Getty Images

"It's an important consideration," said Howard Pressman, a certified financial planner and partner at Egan, Berger & Weiner in Vienna, Virginia. "Many people don't want a firm so large that they can't get the personalized service and advice they deserve but [really small] practices might not have enough coverage to meet clients' needs."

Consumers face a dizzying array of choices when deciding who to enlist in their efforts to manage their financial lives. With varying degrees of education and professional credentials, some advisors might focus on investments or insurance, while others delve into areas like tax planning or college savings as part of their advice. On top of all that, they can work at companies ranging from a one- or two-person shop to a behemoth.

For example, Bank of America's wealth management unit – which includes Merrill Lynch and U.S. Trust – manages $2.6 trillion in client assets among a 16,400-strong army of advisors, according to its latest quarterly report. That contrasts with solo operators who work from home and manage a few million dollars. Then there's everything between the two extremes, making for an industry where thousands upon thousands of companies compete for investors' money.

If something happens to your advisor, you want to know there's a plan in place to make sure you're taken care of.
Evan Beach
Wealth manager at Campbell Wealth Management

With smaller firms, the biggest benefit is how personal the relationship with your advisor can be and their ability to tailor their advice to your specific situation, industry observers say. There are other considerations, however.

If you're thinking about going with someone at a solo or very small operation, ask if he or she has a succession plan in place. That is, advisors should have formal arrangements detailing who would take over managing client assets and/or financial plans if they plan to retire or unexpected death or disability occurs.

"If something happens to your advisor, you want to know there's a plan in place to make sure you're taken care of," said CFP Evan Beach, a wealth manager at Campbell Wealth Management in Alexandria, Virginia.

Additionally, small firms tend to have fewer options for who's on call if your advisor goes dark.

"If an advisor goes on vacation or gets sick, there should be a backup system in place to cover that absence," said Christine Benz, director of personal finance for research firm Morningstar.

Your advisor’s succession plan

Another consideration is that small firms are less likely to have a wide range of expertise in-house and subsequently refer clients to external specialists (say, a trust attorney) as needed. While not necessarily a bad thing, it means "you just won't be able to walk down a hallway to find the expertise you need," Benz said.

If you're considering someone at a large firm, meanwhile, some advisors say it's worth asking how many clients the person has. While many companies have systems and protocols that allow their advisors to operate efficiently and serve a larger number of clients, there's still a limit to how lengthy that roster can get before you start feeling like a number.

Another consideration that goes with larger firms is their tendency to focus on asset growth instead of taking a holistic view of a person's financial situation.

"People need more help on the planning side than they do with investments," Benz said. "Larger firms disproportionately focus on the investment piece."

She said that advisors at larger firms also may be more restricted in what they can offer as investment choices.

People need more help on the planning side than they do with investments.
Christine Benz
director of personal finance for Morningstar

"Smaller firms might have more flexibility to deal with the idiosyncrasies of your portfolio," Benz said. She added that at very large firms, advisors offering in-house investments is an arrangement that also creates the potential for conflicts of interest.

Although company size is only one aspect of choosing a financial advisor, it should help you make a choice you can feel good about.

"You can get whatever type of advisor you want," said Beach at Campbell Wealth Management. "You just have to be patient and talk to enough people to find that person."