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Investors like to think that the financial advisors they work with are 100% focused on making sure they pick the best investments. But now more than ever, advisors have their own jobs to worry about -- and as Wall Street deals with increasing regulation and pressures on profits, you may find yourself on the short end of the customer-service stick.
A great year -- for your advisor
From early indications, it's been a good year on Wall Street. So far this year, Morgan Stanley (NYSE: MS ) is on track to pay out nearly $16 billion in compensation and benefits, which translates to about $250,000 per full-time employee. Goldman Sachs (NYSE: GS ) thinks its bonuses will be substantial enough that it's considering paying them early to minimize taxes, just in case a deal to restore the tax cuts that are currently due to expire at the end of the year falls through.
But times aren't good for everyone who manages money for a living. At Bank of America's (NYSE: BAC ) Merrill Lynch division, advisors with low production numbers are reportedly going to be shown the door. Specifically, starting at the end of 2011, if advisors fail to meet the company's targets for client commissions and fee revenue, then Merrill will remove them from the company's advisor group. The move follows on the heels of UBS (NYSE: UBS ) and its wealth management division, which last year laid off about 650 advisors who weren't producing enough revenues for the company, and sold off low-revenue offices to Stifel Financial (NYSE: SF ) .
What that means for you depends on how much money you have to invest. If your account generates substantial fees, then you can expect your advisor to fight tooth and nail to hold onto you -- while also trying to keep as much time as possible available to bring on other high-end clients. On the other hand, if you're more high-maintenance than your fee revenue warrants, then you can expect to get handed off to a lower-service division like Merrill Edge, a non-full-service program designed for those with less than $250,000 in assets under management.
Demand more for less
Ironically, you might be able to do better for yourself by using a discount broker. For years, investors have been wary of discount brokers, arguing that they're bare-bones providers that don't offer the same level of service that full-service brokers do. Even if their commissions are lower, the argument goes, you can't get the same sort of personalized advice that full-service brokers often give.
But that way of thinking about discount brokers is way out of date. You'll find a host of different options at a fraction of the commissions and fees you'd find elsewhere. For instance:
- E*TRADE Financial (Nasdaq: ETFC ) offers both personalized guidance from financial consultants as well as managed investment portfolios that act as one-stop shops for investors who don't want to come up with their own mix of investments.
- Vanguard gives clients the chance to have low-cost appointments with CFP professionals, and also has additional service tiers depending on how much you have to invest.
- Charles Schwab (NYSE: SCHW ) offers a free initial consultation with investment guidance as well as ongoing support as needed.
Now obviously, as employees of their respective brokers, these professionals are going to have a vested interest in guiding you toward their own products. But given the lower costs involved, the odds are higher that those investments are ones you would have chosen for yourself regardless. And since you're the one calling on them for advice rather than dealing with cold calls trying to grab a bit more of your money, the dynamic is much more comfortable.
An alternative is to hire a fee-only financial planner. That way, you'll get top-notch investment advice at a price you set well in advance.
Be good to yourself
So if you have a love-hate relationship with your full-service advisor -- or you're just curious what the competition's like these days -- take a closer look at discount brokers and fee-only financial planners. You might really like what you see.