Good morning.
Today's update is a bit dry but has important factual data (this sometimes happens in my field, as I'm sure you've all realized).
My firm is a registered investment advisor (RIA). I don’t spend much time talking about what that means, but I believe it is important for clients and people looking for a financial advisor to understand the benefits of working with an RIA firm like mine.
Let’s get a few definitions from Investopedia out of the way:
- Registered Investment Advisor (RIA): a firm that advises clients on securities investments and may manage (without taking custody) their investment portfolios. RIAs are registered with either the U.S. Securities and Exchange Commission (SEC) or state securities administrators. RIAs have a fiduciary obligation to their clients, meaning they have a fundamental duty to always provide investment advice that is in their client’s best interests.
- Custodian: a financial institution that holds customers' securities for safekeeping to prevent them from being stolen or lost. The custodian may hold stocks, bonds, or other assets in electronic or physical form on behalf of its customers.
- Broker/dealer: a firm in the business of buying and selling securities for its own account or on behalf of its customers. A brokerage acts as a broker when it executes orders on behalf of its clients, whereas it acts as a dealer when it trades for its own account. In other words, broker/dealers serve clients and themselves at the same time while acting as an advisor and a custodian.
By separating the function of custody from who is giving the advice, an RIA is able to provide truly unconflicted advice. Plus, there are more ways clients benefit from working with an RIA. Being an RIA, I have:
- Access to a broader set of investment solutions and services. This includes access to less expensive mutual fund share classes or ETFs (exchange-traded funds) often unavailable on a broker/dealer platform, thus reducing investment costs.
- More flexibility to adopt new technologies at a faster pace. Technology enables advisors to provide additional services in a more efficient manner. For example, there are dozens of available financial technology solutions and productivity tools that are not approved for use at traditional broker/dealers.
- The ability to expand the service offerings beyond what a broker/dealer might be able or willing to approve. Examples include tax planning, insurance, annuities, and tax preparation.
Bottom line: Broker/dealers often have large marketing budgets that help give them name recognition. But that doesn’t make their services and offerings any better, usually just more expensive.
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Thanks and have a great weekend.
Tim
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