The Value of Professional Investment Advisor
Even when you find yourself in a financial situation that seems impossible to get out of, you should seek advice from a professional fiduciary advisor. In many cases, your advisor will be able to recommend a course of action that improves your financial situation.
For example, our firm once had a client who came to us after buying annuities that included very high commission charges.
Our years of experience navigating difficult financial matters were put to good use, as we were able to get her out of those investments, have all her money refunded, and put her money in investments that had no-loads and lower expense ratios.
No matter the situation you find yourself in, you’re never alone when you have the advisors at Ferguson-Johnson Wealth Management on your side.
Fee Only Registered Investment Advisor Explained
The SEC holds registered investment advisors to a fiduciary standard, meaning they must act in the best interest of their clients and clearly disclose any activities or advice that would pose a conflict of interest.
These firms are required to have compliance programs in place to prove they can meet these standards. Generally, advisors with $100 million or more of assets under management must register with the SEC. Smaller advisory firms generally register with state regulators, instead.
Many RIAs typically rely on fee-based compensation calculated on assets under management, a structure designed to align their interests with the interests of their clients and avoid conflicts related to commissions or other forms of compensation – conflicts of interest.
In contrast, Fee-only registered investment advisors do not earn commissions or receive compensation from the sale of financial products such as stocks, bonds, or insurance policies.
This compensation structure is designed to ensure that the advisor’s recommendations are solely in the best interests of their clients.
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SEC Registration
Registration requires disclosing information about business practices, fees, and potential conflicts of interest. Regardless of their size, firms’ compliance programs include
1. Code of ethics. Registered advisors must adopt and follow a written code of ethics.
2. Insider trading safeguards. Their code of ethics must prohibit making financial investments based on information that others do not have.
3. Chief compliance officer. Firms must assign a staff member to act as chief compliance officer, tasked with administering compliance procedures.
4. Policies and procedures. In addition to a code of ethics, firms must adopt written policies and procedures that aim to prevent, detect, and correct violations of the Advisers Act.
5. Annual compliance review. Policies and procedures must be reviewed on an annual basis to ensure they are adequate and effective.
Investment Advisor Representatives
The terms RIA and IAR (investment advisor representative) are often confused. And RIA is a firm, whereas an IAR is an individual who works for an RIA.
IARs must meet certain qualifications to work with an RIA and must adhere to the same fiduciary standards – always acting in clients’ best interest.
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The SEC offers a searchable database containing three types of investment advisors.
- Investment advisor firms
- Investment advisor representatives (IARs)
- Exempt reporting advisors
This database provides detailed information on firms such as total assets under management, number of employees, and contact information.
In choosing an RIA, it’s essential to research beyond this. Since you are choosing a financial advisor, you want to find a firm and individuals who align with your values and have expertise in your needs.
On the RIA (firm) level, be sure to understand its philosophy, standards, and specialties. On the IAR (individual) level, look into the skill set and qualifications of the person or people who would be managing your portfolio.
Also Check:
Form ADV
This form is used by investment advisors to register with the SEC or with state regulators. It provides detailed information about the firm, from the type of fees charged, client types, and assets under management.
IAR backgrounds
The SEC’s free Investment Adviser Public Disclosure tool is available to learn about individual investment advisors’ registration status, employment history, disciplinary actions, and customer complaints.
Services offered
What types and level of advice will the firm offer?
Investment Advisor vs. Broker-Dealer
Broker-dealers are individuals or firms licensed to sell individual securities, whereas RIAs cannot sell securities and act instead in an advice-based capacity – RIAs are required to only act in their client’s best interest.
However, an RIA may be associated with several broker-dealers. RIAs provide a wider range of advice on finance, including investments, taxation, and estate planning.
Frequently Asked Questions
RIAs are required to act as fiduciaries, always in the best interests of clients and seek to avoid conflicts of interest.
As of 2022, the U.S. had more than 15,000 SEC-registered investment advisors, according to Statista.
An Investment advisor representative is an individual who works for a registered investment advisor – the firm. Like the firm, they must adhere to a fiduciary standard, acting in clients’ best interest.
Investment advisors are regulated based on location and assets under management. Generally, advisors with $100 million or more of assets under management, or those who advise a registered investment company, must register with the SEC. Others register with state regulators.
Investment advisor representatives must meet certain qualifications to work with an RIA and must adhere to the same fiduciary standards – always acting in clients’ best interest.
They must have passed the necessary licensing requirements for offering investment advice or met certain exemptions such as having a CFP® or CFA® designation.
RIAs often are compensated by a percentage of the assets under management for each client. This form of compensation comes directly from clients, not third-party sources. The aim is to align the success of the client with the success of the RIA.
There are many types of financial advisers. Some work as independent contractors while others work full-time for financial firms.
You can generally check the certifications and licenses of individual financial advisors through online tools or through a firm’s website.
The most common certification that is important to most individual seeking help with their personal finances is the CFP® (CERTIFIED FINANCIAL PLANNER™).
