Column: Understanding different business models of financial services


The past couple of columns addressed some of the important questions that should be considered when evaluating and contemplating hiring a financial professional.

Up to this point, we’ve focused around the name on the door. Let’s take a look at the name above the door and evaluate the different types of business models that advisors can operate.

Big-name brokerage houses

These types of firms are going to be the household names that most of us have heard of in the past and are traditionally featured in the news for multiple reasons. Oftentimes called “wirehouses,” they are the large Wall Street firms in which advisors operate.

A number of these firms have proprietary funds and products that their advisors often use for their clients. The advisor in this business model can operate under a commission or fee business model.

One potential downfall is that they may be limited in the financial vehicles that they can offer their clients because of management decisions, mutual selling agreements between companies and business models.

A potential advantage is that, for a complex client needing multiple high-end services (such as investment banking, business financing, etc.), it may be a one-stop shop for multiple solutions.

The insurance model

You may see these firms advertised as “XYZ Firm: Providing insurance and financial services.”

Their typical business model has always been and continues to be insurance-based and risk management. However, management at these companies realize that there is additional revenue that is being left on the table by not offering “financial services.”

You’ll typically see these agents having their insurance license as well as FINRA securities licenses Series 6 and 63, which allow them to offer mutual funds and variable products (such as annuities and variable life insurance contracts).

While they may have other vehicles to offer, the core business behind this model is insurance.

The fee-only independent model

These firms are financial planning and advisory firms that are typically wholly owned and operated independent of any national brokerage or insurance firm/agency. This means that they, by definition, do not have FINRA securities licenses but rather are registered as “Registered Investment Advisors,” or RIA’s.

Their name is both on the door as the advisor(s) and also above the door as owner(s) of the firm. What this means is that 100 percent of their compensation comes from the client in the form of fees paid.

The benefit to this business model is that clients have the peace of mind knowing that the advisor can always work in the best interest of the client and actually have a legal obligation to do so.

A potential downside to this business model is that they can sometimes have high minimum asset size requirements, which can leave a well-intentioned potential client on the outside looking in.

The dually registered independent firm

In true transparency, this is how we operate our firm. What this means is that, as independent advisors, we are similar to the fee-only model mentioned above in that we are not captive to a specific firm and are not required to offer only a select number of vehicles.

Again, similar to the fee-only model, our names are both on and above the door. These firms have typically aligned with an independent broker/dealer and registered investment advisor, allowing us to do business with clients in both a commissioned and fee model.

The important quality to understand when working with this advisor is, as I’ve mentioned in the past, understand up front where their compensation is coming from and how they’re serving you.

When all is said and done, there are multiple different ways in which advisors can set up their business and serve their clients. Until our industry adopts a uniform fiduciary standard, which will require all advisors to have a legal obligation to put our clients’ best interest first, it’s important to understand the different business models that exist and how they serve clients.

Adam Cmejla, CMFC® is President of Integrated Planning & Wealth Management, a comprehensive financial services firm located in Carmel providing comprehensive retirement planning strategies to individuals near or in retirement. He can be reached at 853-6777 or

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