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Registered Investment Advisor Search: The Benefits of RIAs

By Bruce Smith | November 11, 2015

Many of the investors I talk with question whether they have a good wealth advisor. Often, I’m surprised to hear that their investment stories and experiences are characterized by poor guidance, lackluster service and, sometimes, outright financial abuse.

Bruce Smith is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyMany people advertising themselves as investment professionals don't provide any meaningful service to their clients. It’s like the advisor simply sets it (the invesment portfolio) and forgets it.

The sad part is that many investors never realize they're being abused. However, if you know what to look for, you can better avoid the "no-service" advisor and, instead, enter into a dramatically better relationship with a wealth advisor who has your best interests in mind.

An (Unfortunately) Typical Investment Professional Profile

The financial services industry is largely composed of brokers and their representatives. In both cases, their role is essentially that of a salesman. They sell you products and earn a commission from those sales.

It may not be obvious, but brokers or investment professionals who depend on sales commissions don't necessarily work in their clients' best interest.

  • Brokerage firms often push the sale of certain investment products, such as specific stocks, mutual funds or bonds.

  • Advisors of brokerage firms can earn commissions from your investments when buying or selling on your behalf. Often, they are also rewarded with cash bonuses and gifts for selling certain investment products and meeting sales goals.

  • Brokerage firms regularly set sales quotas that must be met or the advisor is admonished or fired for a lack of productivity.

  • Importantly, brokers and certain advisors only have to balance their personal interests with the brokerage firm's interests and the client's interests. That's a lot of balancing going on! This gives plenty of wiggle room to recommend any number of products to their clients -- even if they wouldn't feel confident investing in these products themselves.

These sales tactics can create enormous pressure for advisors to sell an investment product that may or may not be in the client's best interest.

Two Forms of Abuse by Some Investment Professionals 

These are the two areas of abuse I most often hear about from investors:

  • Total lack of service. Many investors tell me that they can’t remember the last time they met with their advisor. They have no idea how their money is being invested and they do not know what their advisor is doing for them.

  • No fees and a lack of disclosure. Many investors truly believe they are not paying any fees for the management of their portfolio. The fact is that investors who think they are paying nothing often are the ones being charged the most.  

Think about it... if an investor is paying nothing, then how is the advisor, the advisor's company, the custodian, the fund manager and everyone else getting paid? No, the fees are there, even if they're undisclosed or aren't easily found in a monthly or yearly statement.

I don’t want to imply that all investment professionals are dishonest because, of course, they aren't. However, stories like these happen, in our opinion, with an alarming frequency.

What Makes a Great Wealth Advisor?

Many investors don’t realize there is a world of difference between a traditional broker and a Registered Investment Advisor (RIA).

  • Registered Investment Advisors are not typically in the business of selling products for a commission.

  • RIAs are under full disclosure regulations requiring them to disclose all costs, fees, conflicts of interest associated with their services and products being used.

  • RIAs are regulated by the Securities and Exchange Commission (SEC) if they exceed $100 million in assets under management and are required by law to put their clients’ interests first.

Bruce Smith is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyI don’t know about you, but if I could choose between working with someone who would put my interests first, versus only balancing their personal interests with mine, I know what my decision would be.

Clients deserve to have an advisor who will talk with them about anything relating to their financial peace of mind. Being available to clients and having structured, periodic meetings to review their personal financial situation is essential. Our goal is to hold an extensive meeting with our clients at least once a year.

Registered Investment Advisors and their regulation by the SEC helps to protect clients from the abuses we discussed earlier. There is too much at stake to put your financial future in the hands of an advisor who may not be committed to your success. There are advisors in the financial services industry who really want to help you improve your financial standing. If you have any doubts about how your advisor is performing it may be a good time to look at your other options.

 

 

Posted in Financial Planning

   
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