Registered Investment Advisor

First, an example: Let’s say a car salesman has two cars to sell you: a van or an SUV. He gets a nice bonus check for every SUV he sells, but just a regular commission for the van. Which vehicle is he more inclined to sell? Can you be sure that the SUV is really the car you need, based on his advice?

The same paradigm applies to your money. Brokers often receive a nice commission by selling you the services of another company. In April, 2005, the U.S. Securities and Exchange Commission released some rules governing brokers. They are required, by law, to include the following in their brokerage agreements (the underlining is ours):

“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”

​Why Work With A Fiduciary / Independent Registered Investment Advisor?

Conversely, Registered Investment Advisors (RIAs) are required to act as fiduciaries. They act at all times for the sole benefit and interest of their clients (returning to our analogy, they sell you the car that best meets your needs). An RIA:

  • Has a fiduciary duty to you. They must put your interests ahead of their own.
  • Is required to recommend what they believe are the best choices for you, not just suitable stocks or mutual funds.
  • Must, by law, disclose all income sources, possible conflicts of interest, qualifications as an advisor, and any disciplinary history to you — even if you didn’t ask for this information.
  • Must clearly disclose if they are no longer acting as an adviser, but as a sales agent in implementing any of the recommendations they have made to you.