By Yvonne Marsh, CFP®, CPA
Trust is a big deal in my business. As I sit with a retired couple watching them sign the paperwork allowing us to manage their investment portfolio, I am reminded of the weighty responsibility our firm has. They are entrusting us to be good stewards of their life savings and to give them our expertise and guidance; to help them navigate the unknowns of their financial future. Weighty indeed.
In the preliminary meetings with the couple, they asked one of the most important questions anyone can ask: Are you with a registered investment advisor or a broker dealer? Ah! I could tell they had been doing their homework – the answer to this question is fundamental to understanding how you are offered advice and how your advisor is compensated.
In the broker dealer world, the advisor works for the “house”, operating with the tools pre-designed to give the house an advantage. Don’t get me wrong – they may truly care for their clients’ well-being and be of high moral character, it’s just that they are constrained by a set of products pre-approved by their employer and the system is designed to reward selling rather than providing conflict-free advice. Legally, all they have to do is provide a product that is “suitable” to you.
In the registered investment advisor world, there is no “house”. RIA’s can access virtually all products and use an independent custodian to hold client assets. They are required by law to put their clients interests ahead of their own. This is known as the “fiduciary” standard of duty. RIA’s are paid a flat percentage of assets rather than commissions, effectively putting them on the same side of the table as their clients. As client account balances grow or decline, the RIA’s income follows suit. There are no commissions for buying and selling.
And just to keep life interesting, your advisor can have a foot in both worlds and be dually registered, effectively switching hats, on an account by account basis. Crazy, right? Here are a few questions to ask your advisor:
“Are you affiliated with a broker dealer?” If you see “SIPC” in the small print on their business card, they are.
“Does your employer receive money from the funds I am invested in?” i.e. in 2018 Edward Jones received $78.9 million from American Funds, and they acknowledge it creates a conflict of interest. Here’s the link!
“Do you receive compensation from trading stocks or bonds? Or from purchasing the mutual funds I am invested in?”
When I first got my investment licenses, I spent a painful short year in the broker dealer world – a friend recommended I work with him in that space, and I naively didn’t know any better. I got a quick lesson and left for the RIA world. I’ve never looked back.
Marsh Wealth Management, LLC
504 Ebenezer Road
Knoxville, TN 37923
Financial Planning & Investment Advisory Services are offered through Marsh Wealth Management, LLC (“MWM”), an independent investment advisor registered with the state of Tennessee. Yvonne Marsh is an Investment Advisor Representative of MWM in the state of Tennessee. Marsh Professional Group, LLC, is a TN registered public accounting firm and a separate legal entity from MWM. For a detailed discussion of MWM and their investment advisory fees, see the firm’s Form ADV on file with the SEC at www.adviserinfo.sec.gov.