A survey from the Luxury Institute shows that high-net-worth investors (with $5 million or more in assets) prefer boutique wealth management firms over Wall Street giants. Those who opt for boutique firms cite quality, exclusivity, and other factors. But what about investors of more limited means? What’s the best choice for them—smaller independent firms or big-name companies?
The Wealth Management Luxury Brand Status Index (LBSI) survey from the independent Luxury Institute in New York scores respondents’ answers based on each firm’s quality, exclusivity, social status, and ability to deliver special client experiences. The average respondent reported $15 million in net worth and income of $720,000.
“Reputations for honesty and superior client service are what make the smaller firms standouts in this survey,” says Luxury Institute CEO Milton Pedraza.
Investors have been shifting toward independent advisors for years. The number of independent Registered Investment Advisors, for instance, surged 31% between 2004 and 2010, according to Cerulli Associates Inc. A report by Charles Schwab, the 2012 RIA Benchmarking Study, shows RIAs enjoyed an 8.2% increase in new clients in 2011 (subtracting departing clients cuts the increase to 4.7%), along with a 12% gain in revenue.
The trend is partially due to technology, as smaller firms are now able to offer access to many of the specialized investment vehicles and services that were once the province only of larger corporations with more resources. Declining trust in larger firms in the wake of the 2008 financial crisis is another factor.
Smaller firms enjoy a reputation of being more likely to put clients’ needs first, while large firms are believed more likely to push in-house products. Another widespread belief is that smaller firms offer more in-depth, personalized service.
Many investors remain with big-name firms, however, especially if they are primarily looking for investment services that include access to high-end alternative investments. Even though access has become more widespread through technology, many of the larger firms still have an edge in terms of cost.
Some investors have even more specific reasons for sticking with the larger companies. For instance, an executive at a big, publicly traded company who has stock options may want to work directly with the financial services firm that handles that company’s options.
Still, many investors have shifted to smaller, independent firms, which tend to offer more comprehensive wealth management services and more coordination among investment, tax, legal, and other advisors.
If you are looking for a financial advisor, consider interviewing advisors from both large and small firms, then compare them in relation to your own needs and goals.
