Everyone knows someone whom is a financial advisor, it could be your own advisor, a friend or relative, or even a voice on the radio or face on TV. The term Financial Advisor can cover a wide range of professionals from integrated wealth management to selling life insurance or mortgages at a bank and anywhere in between. To distinguish your advisor from the rest, one important question should be asked. How are you registered?
Your answer will be either Registered Representative or Registered Investment Advisor (RIA). There is a big difference between the two. As a Registered Representative, you advise clients based on suitability where as a Registered investment advisor, you act as a fiduciary for your clients. Let me simplify the difference.
As a Registered Rep, if you can prove that a product is suitable for the client, then is appropriate to sell that product or service. Whatever you are selling does not have to be in the clients best interest, just suitable. However, as a RIA and a fiduciary, there is no selling or suitability. You must at all times do what is in the clients best interest. In my opinion, this is a better for the client in a number of ways. Here a just a few:
1) RIA's work on a fee only basis and cannot generate product commissions. There is no incentive to promote one product over another and not conflict of interest. As a Registered Representative, you can do fee based business and generate commissions as well.
2) Who you represent? As a Register Representative represents their firm where as a Registered Invest Advisor represents their clients
3) Unbiased advice. A Registered Representative may be persuaded or inclined to direct assets to his or another firms specific offerings and investments. An RIA has the unrestrained ability to provide advice without the incentives, commissions or kickbacks of any kind.
Over the past decade, we have seen below average returns from equities. Individual investors are scared, frustrated and confused about how to invest there hard earned dollars so they can retire and live a better life. If you are considering working with an advisor, simply ask: How are you registered? It could be the start of a great long term relationship.