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  • Mercedes Petrellis

The Case for Small Advisory Firms

January 2023



A friend asked me for a recommendation for a financial advisory firm and, of course, I referred her to CIM. She asked would she better off with a big firm. I said I doubt it. Here's why.

The PA Department of Banking and Securities oversees 200,000 broker dealers and investment advisers. Of the advisers, 80% have two or fewer employees. There are a number of reasons small advisory firms continue to thrive. To paraphrase Kermit, it’s not easy being big. How do you like the service from your cable or phone company? Or your bank, your health insurance company? Vanguard’s customer service was good back when it was at a few billion, but at over seven trillion, not so good. Scientific studies have found a direct correlation between the size of a company and the longer your time on hold. Despite what the recording says, your call is not important to them. For many firms, efforts at adding scale (growth) and the monetization of their services, are the quickest and surest way to increase profitability. But those goals are hardly associated with providing quality service.

Large firms build their own technology and then they are stuck with it as it ages. It’s why we don’t use our car’s GPS. Big firms are laden with processes, rules, procedures and constraints. They not only have to keep customers in line, but their own staff as well. Wells Fargo has paid out billions due to regulators findings of serious “system failures.” In 2016, it was discovered that over several years more than a thousand employees, in order to meet unrealistic sales quotas, opened millions of fake accounts.

Small firms may lack certain in-house resources, but there are legions of firms available to provide them with information, technology and operational support. Serving small business is big business.

CIM, not surprisingly, thinks it’s better for an investor to swim in a smaller pond than a bigger one. A valid question is: how much money do you need to have to receive first class service from a bigger firm? There is no clear answer. For the most part, big firms are just not capable of providing consistent, excellent, personalized service. They’re just too, how should we say, big.

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