When I started in the brokerage business 24 years ago, there were mostly commission-based brokers. So when you walked in to one of the local brokerage houses, you knew what to expect for the most part. Most of the brokers at Tucker Anthony, where I started my brokerage career, were building portfolios with individual stocks or bonds, municipal bonds being a favorite. While mutual funds were becoming very popular, they were typically used in conjunction with the individual stocks and bonds. I myself used mutual funds for very specific reasons. Exchange traded funds were not even available at the time. If you are investing money in 1995 it was very likely that you are in a typical brokerage account as opposed to a fee-based or fee-only wrap account. The tide has shifted dramatically in the last 20 years towards fee or wrap accounts. Brokers were transformed into financial advisors with less ability to touch the money as opposed to delegating to mutual funds, managed money or variable annuities. While most brokers were persuaded to get their series 65 or managed money license, I recall most accounts at Tucker Anthony were commission based brokerage accounts.
In 2020, we now have a variety of fee only, fee and commission or commissioned product sales. But it gets even more complicated by the fact that fee only, fee and commission, or commission product sales people are not all the same even within their own category. For example, a financial planning firm that is fee-only may charge for the creation of a financial plan and a fee to allocate those assets. But that same firm may not manage assets in house but designate to outside managers. They may recommend certain types of insurance but they do not sell you the insurance they may refer you to an insurance agent. A different fee and commission firm may manage your assets in house sparing your account of additional outside management fees. That firm may also sell the insurance recommended for that client. Then you have the “financial advisor” that is licensed differently than the investment advisor. That advisor is considered a registered representative that works for a broker-dealer, the investment advisor typically works for the client in a fiduciary capacity. Registered reps with a license to use a fee platform may have the ability to manage money on their firm’s platform but I believe they are more biased to product sales and commission business. You may find an advisor that is only licensed to sell insurance product. It can be very confusing to the investing public because, at times, the insurance salesperson holds themselves out as an advisor or planner but may not have that experience or training.
I could be biased and give you my opinion of what model is best, but I’ll will keep opinion to myself. What I recommend is that you review your account statements. Look at the advisor or your advisor’s firm, ask questions regarding how they are paid, how are they licensed or registered and don’t be afraid to talk with a couple of different types of firms. Look for your best fit and do your homework. Learn to find, read and understand the various disclosures regarding that firm and their practices.
