Over the last five years the industry has experienced a significant shift away from traditional brokerage accounts to fee-based, or investment advisory, accounts. While fee-based accounts often make a great deal more sense for a client than a brokerage account, the advisor’s decision about the type of fee-based accounts to focus on opening is worthy of consideration. In other words, does the advisor want to manage assets, or would he rather gather assets? The bottom line is that correctly managing assets takes a great deal of time and energy, often to the detriment of growing the advisor’s practice. However, if the advisor chooses to focus on advisory accounts that use third party managers, the advisor will have more time to meet with clients and gather assets. There are positives and negatives to both. With the use of a third party manager, the cost is often more to the client because of the fees to be paid to the manager, but you get a professional manager who does nothing other than watch the market and make investment decisions. Importantly, if you are unhappy with the performance, you can simply switch to another money manager. In fact, most clearing firms that offer third party managers on their advisory platforms, including Pershing and First Clearing, also monitor the performance of such managers. Furthermore, in many cases, the client’s account is simply not large enough to be placed with the money manager directly, so going through the clearing firm’s advisor platform is almost a necessity. As a result of the aforementioned, many advisors believe that the advantages of using a third party manager exceed the disadvantages. Many advisors, however, like the challenge of personally identifying the best investment opportunities for their clients. The choice is up to the advisor, and should be taken seriously if the advisor is interested in creating a sizable advisory practice.
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