Is my Huntsville Financial Advisor doing what’s right for me?
Broker vs. Insurance Agent vs. Investment Advisor:
Not all investment advice is created equal. Did you know there are many types of “advisors” working in the Huntsville financial services market? Some are sales people, others are true advisors. Insurance agents are compensated to sell insurance and annuities; and may also provide financial planning services. Broker-Dealers are compensated to sell securities like stocks and mutual funds, and they may also provide financial planning services. Lastly, Investment Advisors provide investment advice, are required to act as a Fiduciary and are only compensated by you to provide advice that is in your best interest. So what’s the best way to ensure that you receive guidance that is in your best interest 100% of the time? You need to hire an advisor who is a fiduciary. These types of advisors are fee-only Registered Investment Advisors.
The cost of making the wrong choice:
Many brokers and insurance agents in Huntsville are well intentioned and do their best to provide sound recommendations to their clients. However, the evidence shows that whether by personal choice or economic constraints, “conflicted advice” costs investors billions of dollars annually. A 2015 study by then President Obama’s Council of Economic Advisors estimated the cost of conflicted advice to be 1% of account performance per year which adds up to $17 billion in aggregate costs to investors each year. Why does that happen?
Choosing profits over investors:
Brokerage firms were created as the retail sales arm of investment banks. Their purpose is to sell securities created by the bank or its partners, not to provide unbiased advice. Brokers are registered and regulated by the Financial Industry Regulatory Authority (FINRA), which was established by the Securities and Exchange Act of 1934. As a result, they are held to a standard known as “suitability” to determine if they can sell you particular investment product. This means the product they are placing in your portfolio must provide some benefit to you based on your investment profile. Brokers are free to recommend the investment that provides the most economic benefit to their firm as long as that investment meets the low suitability standard. They can choose profit over the best investment for their clients. Also keep in mind, the low suitability standard applies regardless of whether the brokerage firm charges you per transaction or a fee based on a percentage of assets under management. Investment Advisors are registered with the Securities and Exchange Commission (SEC) or the local state under the Investment Advisors Act of 1940. As a result, they are required to act as a fiduciary. A fiduciary must place your interest (as the client) above their own, make recommendations based on thorough analysis and avoid conflicts of interest. This is the highest standard of care, and the standard you should seek out when looking for investment advice in Huntsville.
Why its complicated…duel registration:
So it’s simple right, just choose someone who is an investment advisor and acts as a fiduciary? To complicate matters, many national broker-dealers have “advisors” who act as brokers, insurance agents and investment advisors with clients. If you work with one of these firms, your advisor may act as a broker with a suitability standard in some situations and as an investment advisor with a fiduciary standard in other situations, leaving it up to you to read the 10 page, size 4 font disclosure statement to determine which is which.
What’s the best way to ensure that you receive financial planning and investment advice that is in your best interest 100% of the time?
You should seek out a fee-only Registered Investment Advisor (RIA). Unfortunately, not all RIAs are the same, so also ensure the RIA is not also in a sales relationship with a broker-dealer or insurance firm.
Capital Stewards is a Registered Investment Advisor and a fiduciary. We are solely compensated by our clients in Huntsville for providing advice that is in their best interest. We would be delighted to schedule a call with you to discuss how we work together with our clients to accomplish their goals.