Learn the differences between indie financial advisors and captive advisors, and how indie advisors are more aligned with their clients and their interests.
It feels great to be independent. I have even noticed that since going indie, my mind is less bogged down and I’m a lot more at peace. The pressure of sales quotas, corporate hassles that were at times, business averse, etc. Now gone. My mind is now purely focused on doing the best for my clients and to build my business the right way: with the clients I love. (I have done some spring cleaning and ended ties with certain clients. That’s another topic and blog post, which will be geared to business owners and the importance of selecting the right clients for your business.)
But back to the topic at hand. Any financial planner will not say this, but I like to shoot straight and maybe clear the fog on exactly how things are set up, as I have been an advisor linked to a big firm. I can say this honestly because the whole time I was at the big firm, the client was my #1 focus. I never counted the numbers, I just did what was right, sometimes to the detriment of my paycheck and my standing with the larger corporate entity.
Indie Financial Advisors vs Captive Advisors
Here are four features of captive advisors that can hamper their ability to serve you as well as indie financial advisors could:
1. Limited Product Selection
Many captive advisors are only trained in their company’s suite of products, if that. Some aren’t even trained, period, and just encouraged to go out and sell. Though the big companies have their specific niches and can offer robust products that are great for the client, that perfect fit is not always there. It can be fitting in a square peg in a round hole, or at best, an oval peg in a round hole. Many times, the clients will only be introduced to a product that is not the optimal fit, but makes the most sense for the advisor, or at times, may be the only products the advisor knows.
2. Penalties for Outbrokerage
Though big companies have outbrokerage capabilities, allowing captive advisors to sell other company’s products, it really is just optics. When advisors sell outbrokerage products, they come with a steep penalty (usually, in the 1/3 or 33% range). I was blessed that I kept my own financial house in order so I didn’t need to count my numbers obsessively. However, for advisors with families to support, that 33% can be the difference between meals for their children. Many advisors will choose to push the proprietary product over outbrokerage.
3. Incentives for Proprietary Product Sales
Captive advisors linked to big companies have a lot of incentives tied to them to sell proprietary products. These incentives range from trips to exotic destinations to fancy lunches in the most expensive restaurants. Though things are changing in the industry, with Department of Labor regulations, compensation structures are not necessarily changing for the benefit of the clients. Instead, big companies have reacted by slashing compensation across the board.
4. Low Compensation
Captive advisors usually only get paid between a quarter to half of the revenue they generate, and the rest are paid to the house. Gone are the days that financial advisors or insurance agents make lots of money. Besides saturated markets, earning only half (and many times, less) of what you work so hard to bring in can cause dissatisfaction and desperation, for those advisors who have high expenses and lifestyles to maintain.
Key Points about Indie Financial Advisors
I take pride in the simple life I live, because it allows me to be a stronger business. I invest in assets, not liabilities.
This is why I’m a finance company and not financial. I’m not just a financial planner. I am a businessman. I do business with those who I want to do business with. And if you walk away, it’s not a big deal. Because I reserve the right to do the same. Therefore, the relationships I build and the products are delivered and that overall experience is how I would treat myself or a family member.
The move I have made is in line with my philosophy, on product selection and my laser focus on doing what’s best for my clients. Check out what services we offer so we can start on what you need.
Marc Ang (Mangus) is a financial planner based in Claremont, CA, focused on spreading the gospel about responsible, educated and smart financial planning.