Investment InsightsYour best interests are our fiduciary responsibility
Working with a registered investment advisor
Finding a trustworthy advisor
When looking for a trustworthy financial advisor, you may encounter a dizzying array of options. The Wall Street Journal has identified more than 200 titles or designations used by those offering financial advice. But can you tell one type of advisor from another, including the services and capabilities they offer, and the incentives that drive them?
To help, we’ve provided a simple explainer on the difference between registered investment advisors like Steel Tower and other financial professionals, as well as why this matters to you and your wealth.
Commission-based versus fee-based advisors
Historically, someone who made recommendations to buy and sell stocks in the 20th century was called a “stockbroker.” These days, traditional stockbrokers often rebrand themselves as financial advisors, wealth managers, financial consultants, and so on.
As fiduciaries, RIAs and their representatives must act with complete honesty and loyalty when dealing with clients, including acting solely in clients’ best interests at all times.
These advisors typically work for very large broker-dealers. They make money for their firms and themselves by charging a transaction fee — also known as a commission — each time they buy or sell an investment for a client. This means they are financially incentivized to buy and sell, not to act in the client’s best interests. These advisors also make money when they sell to clients their firm’s own investment products or products that investment companies pay their firm a fee or “kick back” to sell.
Today, clients are choosing in growing numbers to work with fee-based advisors. In this model, the advisor and firm earn an hourly rate or, more commonly, an annual fee based on the overall value of the client’s portfolio. Because the fee-based advisor’s earnings are not tied to encouraging more transactions or selling specific products, they can focus solely on meeting the client’s investment goals and objectives.
RIAs and fiduciary responsibility
Fee-based advisors are formally known as Registered Investment Advisors (RIAs). RIAs fall under stringent regulation by the Securities and Exchange Commission (SEC) via the Investment Advisors Act of 1940 (the “Act”) and state securities departments.
As a result of this regulation, RIAs are classified as fiduciaries, meaning these advisors and their representatives must act with complete honesty and loyalty when dealing with clients, including acting solely in clients’ best interests at all times.
Checks and balances with an RIA
RIAs also typically differ from commission-based advisors with respect to where clients’ cash and investments are housed. RIAs typically establish a relationship where client assets are held with a third-party custodian. So, RIAs can provide investment advice but don’t have direct access to clients’ cash or securities. Having this third-party custodian inserts a check and balance that protects the investor’s assets at no additional cost to them. By contrast, most commission-based advisors put client assets in their employer’s own broker-dealer, with no added layer of protection.
How you can protect your interests
Here are a few questions that can help you find a trustworthy financial advisor.
*Ask your current or prospective financial advisor if he or she is employed by a Registered Investment Advisor subject to the fiduciary standards of the Investment Advisors Act of 1940.
*Ask your current or potential financial advisor whether he or she is legally bound as a fiduciary who must act solely in your best interest at all times.
As a fee-based RIA, Steel Tower is a fiduciary. We must, and do, always put our clients’ best interest first. For more information about our fiduciary approach and investment principles, see About Us.
DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by Steel Tower Investments) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. Steel Tower Investments does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
Steel Tower Investments is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
Investment advisory services are offered through UP Strategic Wealth Investment Advisors, LLC, doing business as Steel Tower Investments. NOT FDIC INSURED – NOT BANK GUARANTEED – MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL – NOT INSURED
