When looking for a prospective financial advisor or evaluating your current one, it is important to vet and find one that is a good fit. Here are key questions you should ask that can help!
What’s the difference between your firm and the typical broker or insurance salesperson?There are basically two types of financial advisors and there are big differences between the two.
STANDARD OF CARE DIFFERENCES
COMPENSATION DIFFERENCES
What’s the difference between your firm and the typical broker or insurance salesperson?There are basically two types of financial advisors and there are big differences between the two.
STANDARD OF CARE DIFFERENCES
- RIAs like WealthBridge Inc., are subject to a “fiduciary” standard of care. We are required to act in our clients’ best interest at all times AND our client’s interest have to take precedence over our own. We are primarily in the business of providing financial advice, have full disclosure requirements, and our compensation is fee-based, not commission-based. In other words, you come first, no matter what.
- Broker-dealers, insurance agents, and commissioned financial advisors are subject to a “suitability” standard of care. They only need to reasonably believe that any investment recommendations are “suitable” and can legally put their interest above yours. Brokers are primarily in the business of buying and selling financial products, are not required to provide full disclosure and conflicts of interest, and are compensated by commissions and kickbacks on financial products.
COMPENSATION DIFFERENCES
- As an RIA, WealthBridge Inc., is fee-based first that gets paid an hourly rate, flat-fee, or more commonly a percentage (1% to 1.6%) of assets under management (AUM). This puts us in the same boat as you. If their assets appreciate, so does our compensation, if values go down, so does our fee.
- Brokers and insurance agents, are compensated by commissions. This unfortunately poses conflicts of interest since they may push high-commissioned products that may not be in your best interest. They are also allowed to take hidden fees and kickbacks from third-parties for pushing their products.
Type of Professional
Disclosures
Account Placement
Product Placement
Asset Placement
Investment Decisions
Education
Compensation
- Broker - Sales Professional. Intermediary and agent between buyer and seller to “broker” transactions. Connect investors to investments. Generally short-term relationships focused on trades and transactions.
- Registered Investment Advisor - Financial Professional. Objective and holistic financial and investment advice based on the best interests of client. Manages assets of the client. Long-term relationship focused as “Financial Quarterback”
- Broker - Large national corporation, brokers are employees
- Registered Investment Advisor - Generally locally owned and operated, independent business
- Broker - Suitability Standard (Lower): Only need to reasonably believe that any recommendations are “suitable” for clients. Duty is to the Broker-Dealer they work for, not necessarily client served. Can legally put their interest above yours, not disclose conflicts of interest.
- Registered Investment Advisor - Fiduciary Standard (Higher): Legal and ethical responsibility to act in your best interest at all times and disclose conflicts of interest. Must adhere to higher standard of full transparency. Bound to the fiduciary standard by the SEC and/or state regulators by Investment Advisors Act of 1940.
Disclosures
- Broker - Limited Disclosure Requirements (Prospectus, hard to understand)
- Registered Investment Advisor - Full Disclosure Requirements by SEC, State (ADVII, full transparent document)
Account Placement
- Broker - Limited to broker parent company
- Registered Investment Advisor - May choose account platform that best fits client needs
Product Placement
- Broker - Closed-Architecture. May be limited to in-house and/or proprietary products with higher compensation
- Registered Investment Advisor - Open-Architecture Platform. Where only the best investments utilized. No proprietary products
Asset Placement
- Broker - In-House Custody. May have direct access to client assets. May pose additional risks
- Registered Investment Advisor - Large Third-Party Custody. Limited power over your assets. Checks and balances
Investment Decisions
- Broker - Broker usually relies on the parent company for investment recommendations and portfolio allocations
- Registered Investment Advisor - RIA is the investment professional with clients having direct access to the decision makers. Investment and portfolio decisions made in coordination between the RIA and client
Education
- Broker - Typically a sales background, many experienced brokers have financial planning education
- Registered Investment Advisor - A financial planning and/or investment education background.
Compensation
- Broker - Commission-based, loads, 12b-1s, finder’s fees, sales bonuses, based on type of securities and number of trades, quota-based, push higher commissioned products, split with parent co
- Registered Investment Advisor - Fee-based, hourly or fixed fee, management fee based on assets under management.
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