Should You Use a Financial Advisor Affiliated With Your Bank?

Pensions have pretty much gone away.  We spend 20 to 30 years in retirement.  And Social Security covers only a fraction of our retirement expenses. This means we are pretty much responsible for saving everything we need for retirement on our own. This may seem like a daunting challenge; some people might consider the help of a financial advisor. But should you hire a financial advisor that’s affiliated with your bank? For most people, a bank is their main provider of financial services. But this does not necessarily a bank is the right place for your retirement savings: They may not offer you the advice and services you need.

The History of Banks and Investing Services

Until 1999, you could not invest through your bank. In 1999, Congress repealed the Glass-Steagall Act that prohibited banks from offering investment and insurance services to retail consumers.  The Glass-Steagall Act was originally passed in 1933 after the Great Depression; many people lost all of their savings and investments when banks went bankrupt. In the event that the firm runs into trouble, there is some additional risk you take on anytime you concentrate more of your assets with any single firm.

Where Should You Put Your Retirement Money?

These days, there is an ever-expanding landscape of banks and financial institutions that can help you save for retirement. These institutions offer these services:

• Keep the money safe
• Help you make investment decisions
• Make the actual investments for you or enable you to do it yourself

If you look at the market landscape of financial providers one way to slice it up would be like this

TYPE	EXAMPLES	COST	Differentiation
Big Banks	JP Morgan Chase & Co Bank of America Wells Fargo Citigroup	Medium	Local presence Strong banking and lending capabilities Able to service the mass market Existing relationships with consumers
Regional Firms	Raymond James Ameriprise Financial	Medium	Local presence Focused on investments like a wirehouse
Boutique Firms and Banks	Credit Suisse Deutsche Bank Barclay’s First Republic Bank	Higher	White glove service for high-end clients Able to offer more custom services to higher-end clients
Discount Brokers	Schwab Scott Trade E-Trade Fidelity	Low	Low-cost trading and investment support services for self-directed investors
Independent Broker Dealers	LPL Lincoln Financial	Higher	Compensation model varies (usually fee only or fee based)
RIAs (Registered Investment Advisors)	Local and independent providers.	Medium	Differentiation
Robo Advisors	Wealthfront Personal Capital Schwab Intelligent Portfolios	Low	Automated portfolio construction, asset allocation and

What Are the Pros and Cons of Investing with Your Bank?

Here are some of the pros and cons of investing through your bank:

Advantages

• Banks often have an existing financial relationship with you – checking, savings accounts, mortgage or car loan. Because of this, they theoretically may be able to offer you better or cheaper services. In practice this tends to apply to wealthier people more who have more assets (and thus, the bank values their relationship more).
• Banks are often local and offer branches you can walk into.

Disadvantages

• Investing is typically not their specialty so they may not offer the same level of services or products of a firm that only does investment management
• If they have a lot of physical branches their overhead is likely higher. These costs get passed onto you.
• Many banks aren’t very efficient in general. These costs get passed onto you as well. Investments managed through a bank do not enjoy the same insurance that regular bank accounts get. You can still lose money when you invest through a bank.

Who Should Use a Bank for Retirement Investments?

A bank can get the job done, but they are not a good fit for everyone.  Good fits for using a bank for retirement investments might be:

• People with less money to invest who want to handle their assets with one (or fewer) financial service provider relationships.
• People with a lot of money who want white-glove service and can take advantage of special lending services that can sometimes be provided to high-net-worth people.

If you are saving for the future and want to keep costs low and put your investments on auto-pilot you may want to consider using the services of a robo-advisor.