Finding a financial advisor that you not only feel comfortable with, but most importantly, that you trust to manage your investments is not always an easy task.
With so many different types of “advisors” vying for your business, it can be confusing to filter out the noise to pick the right one. Broker, Registered Representative, Investment Advisor, Fee-Only Financial Advisor –what’s the difference between them all?
This week, we hope to shed some light on this confusing topic and answer once and for all which type of financial advisor actually puts YOUR best interests above their own.
In a recent column from the Washington Post, author Barry Ritholtz explains the differences between the two standards used to govern the financial industry – the “suitability” standard versus the “fiduciary” standard.
Brokers—or registered representatives as they’re sometimes called—are only legally obligated to do what is “suitable” for the client, and mostly get paid by commission fees from transactions. This can often lead to the broker suggesting unsuitable sales or trades to the client, with their commission earned being the sole reason to do so. Moreover, the client’s best interest is not part of the equation.
In stark contrast, Registered Investment Advisors, or RIAs, are legal fiduciaries for their clients, which means they are obligated to “act at all times for the sole benefit and interest of the client.”
Rithholtz sets the record straight—“The standard is simple. There is zero wiggle room. Any advice, product or service offered to a client must meet the test of ‘Is this in the client’s best interest?’ If the answer is ‘No,’ then it cannot be performed by a fiduciary. It is against the law.”
Another recently published article in the New York Times also comments on this topic by saying that brokers are “very much hunters….hunting for assets.” Ritholtz suggests that in any given year, “brokers charge from five to 10 times (or more)” what an RIA will charge per account.
Can you really afford to trust your retirement to a broker who doesn’t have your best interests at heart?
Ritholtz closes by saying, “When seeking out advice, do yourself this favor: Find an adviser who is legally obligated to put your interests first. When you are retired and living comfortably off of your investments, you will thank me.”
We hope you will click over and read this column and this article at the New York Times for more information. As always, please give us a call if you have any questions or would like to set up a time for a complimentary initial consultation.