Whose Advice Can You TrustPrint This Page
Brokers (aka Registered Representatives) have always had a challenge in managing the “friction” between their client’s objectives and their allegiance to the company or broker dealer they represent. For much of the 20th century the broker/client relationship existed largely to execute buy and sell orders. And in this scenario it didn’t seem necessary for the broker to act as a legal fiduciary. But over time the role of the broker has expanded. Clients now rarely trade individual stocks and are looking for true financial planning more than transactions. And when planning, one is ultimately seeking the best advice. And that’s the rub.
In this day and age, the line is being blurred. Many brokers earn their money the same way that advisors (aka registered investment advisors) do – by charging clients of percentage of the assets they manage. And some advisers still accept sales commissions for some of their compensation. A 2010 study sponsored by several industry groups found that two thirds of investors mistakenly believe the brokers are required to put their clients' interest first.
When searching for an independent fiduciary advisor, we think that it's crucial that the following criteria be examined:
- Make sure the Advisor is registered with the state or the SEC as a “Registered Investment Advisor” or is an Investment Advisor Representative (IAR) of a Registered Investment Advisor (RIA).
- Make sure the Advisor uses a reputable 3rd Party custodian such as Fidelity, Schwab or Vanguard which offers 24/7 account access and sends the monthly statements directly to you.
- Make sure the Advisor is compensated on a percentage of your assets under management, not for buying mutual funds. Make sure this fee is the ONLY fee and is completely transparent. Be sure there are no 12-b1 fees or “pay to play” fees being paid as compensation.
- Make sure the Advisor does NOT receive compensation for trading stocks or bonds.
- Make sure the Advisor is Global Investment Performance Standards (GIPS) compliant. GIPS is the highest standard of accounting and the most respected monitor of investment returns in over 34 countries.
- Make sure you work with an advisor who also manages money for institutions and individual clients. Why? Because institutions have very experienced investment committees that have performed extensive due diligence and require exhaustive ongoing procedural oversight. You may benefit from this added scrutiny as an individual by investing alongside these institutions.