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Is your Financial Advisor a Registered Investment Advisor? (and Why You Need to Know)

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Is your Financial Advisor a Registered Investment Advisor? (and Why You Need to Know)

If you’re working with a financial advisor or thinking about doing so, you may have stumbled across the term ‘Registered Investment Advisor’. While the financial industry is full of acronyms that can seem confusing, it’s definitely worthwhile to learn what this particular term means.

Why? There are many financial advisors out there, but not all can offer you the objective financial advice you need to plan your future properly. Unfortunately, some advisors may offer you advice that actually benefits their firm, rather than focusing solely on how it benefits you.

However, by sticking with one category of financial advisor—the Registered Investment advisor—you can improve the likelihood you will most likely receive truly objective advice.

The Critical Importance of Objective Advice

Not getting objective advice can be very costly. Unfortunately, research suggests it is also quite common. The Council of Economic Advisors Task Force report[i] estimated that conflicted advice ends up costing American retirement savings over $17 billion every year.

It’s wise to be as informed as you can about the financial advisors you entrust with your financial planning and asset management.

What is a Registered Investment Advisor?

Let’s clarify what that phrase means. What exactly is a Registered Investment Advisor? A registered investment advisor, commonly referred to as an “RIA,” is a firm registered with the Securities and Exchange Commission (SEC) or a state’s securities agency. These firms must meet specific criteria and undergo an approval process. Once formed, they are under regulation either by the SEC or by the individual state’s securities agencies. Both the approval process and the SEC regulation are stringent, aimed at providing the highest level of protection and integrity for consumers.

While an RIA is the term for the firm providing financial and wealth management, there’s a separate term for the individuals who are providing the financial advice: Investment Advisor Representatives, known as IARs. This term is one you won’t hear as often as it’s mainly used in regulatory documentation.

Here’s what is most important: the RIA business model requires the firm and its advisors – through legal and regulatory measures – to act as your fiduciary.

Why Your Financial Advisor Should Always Be a Fiduciary

A fiduciary is probably also a word you don’t hear used often outside of professional financial circles. A fiduciary is someone who is required by law to always put your interests before theirs. While that seems like it would be a given, not all financial advisors are held to this standard.

Some financial advisors that are employed by broker-dealers are held to a different standard, called ‘suitability’. Instead of having to put your interests before theirs, they just have to recommend products that are suitable based on your requirements. It may not be the most best product for your circumstances from an objective perspective. It may be reasonable for you but they may be benefitting from it more than other products they may recommend because they earn a higher commission.

It is critical to know which type of financial advisor you are trusting with your future.

What Can An RIA Do For You?

When you work with an RIA, your advisory team is required to act as your fiduciary. Every member providing operations and client service throughout a firm – from investment research to financial planning, from processing documents to assessing risk levels – follows this standard. Anyone touching your accounts or file should always be acting in your best interest.

That’s a huge benefit.

But there’s one more layer that you need to know.

Even if you choose an RIA, there still may be some potential for other conflicts of interest, such as the firm recommending its own higher fee, proprietary products.

Fortunately, there’s one more way you can screen to help avoid those issues.

Even Better: An Independent, Fee-Only RIA

You can avoid many of those other conflicts of interest if you work with an independent, fee-only RIA.

First, by choosing an independent firm devoid of any ties to product companies, you can avoid those sometimes self–serving recommendations of proprietary products.

Then, you can take it a step further by taking commissioned sales out of the equation altogether. You can do that by limiting your search to only fee-only financial advisors. (You can learn more about the importance of paying via fees in our previous article.)

With these filters, you are more likely to avoid any conflicts of interest, leaving you getting objective financial advice. This can give you confidence and peace of mind as you focus on the best partnership to achieve your financial goals.

Advantages of a Team Approach

On top of that, there’s another benefit to working with an RIA with multiple advisors and in-house investment management (and by in-house, we mean folks in your local area that you can meet and get to know, not offloading the investment strategy to a corporate office thousands of miles away that you’ll never meet). You benefit by having the power of a team working for you. When your life savings is concerned, checks and balances are important. The team approach can prevent many problems:

  • You can avoid being dependent on the advice and views of just one advisor.
  • With the right team, you get the benefit of a more reasoned approach to investment management, incorporating important research and risk analysis.
  • If your advisor leaves or retires, another team member can pick things up, helping ensure continuity of service for you.
  • A firm with a depth of operations can keep things running both quickly and securely for you – and in today’s digital world, security is of utmost importance.
  • A variety of credentials within the team, including CERTIFIED FINANCIAL PLANNER® professionals, Chartered Financial Analysts, and CPAs – especially those CPAs with Personal Financial Specialist (PFS designations) will provide a variety of insights and experience from which you can benefit.

If you work with a firm like Domani Wealth, the team also gives you direct access through our own rigorously vetted recommendations to other experts with different specialties, such as tax planning and estate planning, which can help you make the most of your resources.

Finally, hiring an established RIA team can make your life simpler since they’ll likely have a solid structure in place to manage your paperwork, so you’ll feel more organized and in control. It’s surprising how much of a weight can be taken off your shoulders working with a team that’s not only trustworthy and acting in your best interest, but also handles the day-to-day administration of your financial needs.

Final Words of Advice

Hiring a financial advisor requires more than simply looking for someone you like or asking for a friend’s reference – though those certainly weigh into the decision. There are many critical questions you should bring into the decision.

That’s why it’s essential to take your time and vet several prospects to find out this vital information.

Don’t be afraid to ask the firms directly:

  • Do you act as a fiduciary for your clients?
  • How are you regulated?
  • Does your firm have any ties to product companies, or benefit in any way from the sale of any financial products?
  • Is your firm fee-only?
  • Who does your investment research and portfolio management?

The best financial advisors will understand your concerns and welcome educated clients. If an advisor acts offended at your questions, they are providing you a valuable red flag that their interests may not be well-aligned with yours.

Looking for a financial advisor to help you secure your future? Domain Wealth is a fee-only, independent registered investment advisory firm with more than 25 years of experience. Relationships are our focus. Our highly credentialed staff combines expertise in financial planning, retirement planning, tax planning strategies, and estate and trust experience to help you protect your legacy and stay on the path to reaching your financial goals. Working with our team, you’ll have a reliable partner, helping you feel safe, well prepared, and supported. Contact us today at 855-855-5545 or [email protected] to start a conversation!

[i] https://obamawhitehouse.archives.gov/sites/default/files/docs/cea_coi_report_final.pdf

Important Disclosure

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Domani. A copy of Domani’s current written disclosure brochure discussing our advisory services and fees continues to remain available upon request.


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