Boutique vs. Big

Investment Management

Mar 04, 2021

There are many factors to consider when choosing a financial advisor. One important thing that doesn’t always come to mind is the potential influence the advisor may have from the company he or she is associated with. Many investors have a sense of comfort in the brand recognition of some of the major financial firms. They offer a feeling of safety in that their size may limit the risk of fraud. This makes them wary of investing with a smaller boutique firm.

What do investors and advisors give up for that relief? Well, it mostly lies in the incentives that advisors may have to sell proprietary products and services. If your advisor works for ABC company and he or she is only recommending ABC products to you, that should be a huge red flag. However, it doesn’t stop at investment products. Many advisors at the major firms are being pressured to sell proprietary banking products and services to their clients. This puts advisors in a difficult position. There are certainly advisors that embrace it. They have enough clients who will have needs that warrant the use of those products. However, the question still remains about whether or not advisors want this cloud hanging over their heads.

Enter boutique firms. Many of these firms were started by advisors who made the decision to break away from larger firms. The number of boutique firms has grown substantially over the last 10 years and the trajectory is expected to continue. The advisors don’t need the large firms nearly as much as they did in the past. Rather than choosing a financial firm to work for, they can simply choose a partner to custody the client assets and process the transactions. There are some large, household names that have business models to cater to independent advisors and their clients. On top of that, the cost of transactions is very minimal if there is any cost at all. It is a win/win for the advisors and their clients. The advisors don’t have to sacrifice their integrity by having proprietary products pushed on them and the clients get the sense of security of a major financial firm holding their assets.

While we’re not declaring the death of large firms by any means, we do think they will have to make some changes to retain their advisors and clients. The alternatives have never been more accessible. That is a great thing for the most important part of the equation, the client. The advisors are in a better position than ever before to stand up to the “mother ship” and do what is best for their clients. Some advisors will work it out with the large firms and others will break away to a boutique. Either way, the top advisors are making decisions with the client’s best interest at heart. We’re very happy with our choice to be a boutique RIA and are grateful to our clients for their trust in our decision.


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