Crown Wealth Group is extremely proud and excited to announce the launch of its fully independent Registered Investment Advisor firm (RIA) after being recently approved by the state of North Carolina. Prior to going independent, Crown and its advisors were affiliated with a national, corporate RIA but found themselves feeling like a square peg trying to fit into a round hole. The Crown Personal CFO solution goes far beyond traditional financial services (investments and insurance) with a focus on managing all aspects of a client’s financial life. Due to this unique client relationship, Crown advisors require greater access to multiple technology platforms, operational efficiencies and unrestricted access to all financial solutions, products and services available on the open market. Now independent, Crown has been able to very quickly implement new technology and processes which have already proven beneficial to the many families they support.
Advisors affiliated with an independent RIA are client fiduciaries and are required by law to always do what is in the best interest of the client, no matter what. From Crown’s perspective, and many industry experts, working with an independent RIA is the way for clients to ensure they are getting objective advice that is always in their best interest. An example of how far this fiduciary duty goes would be if your RIA advisor recommended you buy 100 shares of Apple in the morning and that afternoon they bought 100 shares for themselves, but got them at a better price, the advisor would then be required to give you their 100 shares and take your 100 at the higher price.
Independent RIAs are not owned or affiliated with larger corporate entities that have their own objectives to compete alongside the client’s. Think sales quotas and contests, advice restrictions, compensation structures that sway advisors to use certain products, company shareholder pressures, etc.
The financial services world can be confusing, and sometimes misleading, so it’s important to understand the various types of professionals available to clients and how to choose one that works best for your specific needs. According to Fidelity Institutional Asset Management, there are roughly 310,000 financial advisors in the United States, and there are seemingly endless titles that financial professionals give themselves - Wealth Manager, Investment Advisor, Financial Planner, Financial Coach, the list goes on and on. Titles aside, there are three common types of “advisors”: Investment Advisor Representatives, Registered Representatives and hybrids that are both.
Investment Advisor Representatives (IARs) are affiliated with Registered Investment Advisor firms and are licensed to give fee-based advice. They are paid flat fees for financial planning or on-going advice and/or a percentage of assets they manage. As an account increases in value, their fee percentage does not change but the amount of the fee collected does. Conversely, if the account value decreases, their fee amount does as well. You win and lose together; your interests are aligned.Clients can also rest easier knowing that IARs at RIAs are held to a strict fiduciary standard that requires them to unconditionally place their client’s interest ahead of their own, regardless of all other factors. Even RIAs that also offer insurance and fixed annuities on a commission basis are required to adhere to this high standard when they use these products. These advisors are not always easy to find, but they are worth it. Only 10% of the nation’s 310,000 advisors are RIA registered, but even more shocking is that only 1.6% or 5,000 operate as RIA only, pure fiduciaries, which puts Crown Wealth Group in a rare breed.
Registered Representatives (RRs), often called Brokers, are advisors that work for a brokerage company, called a Broker Dealer and are the most common type of advisor – there are roughly 305,000 brokers. They are paid transaction-based commissions when assisting a client buy or sell securities – stocks, bonds, mutual funds, ETFs, and variable annuities, among other products.Registered Representatives are held to a suitability standard that only requires them to ensure the investment or product is suitable for the client’s situation. This doesn’t not mean it’s the best product for their situation, just that it passes the suitable test. Most things are suitable for most people, so that’s quite an easy standard to check the box on. This is a key difference from working with an Investment Advisory Representative who is required to provide you with advice that is always in your best interest. The Registered Representative is paid a commission at the point of sale, often a percentage of the amount invested. These commissions are commonly 5% but can go up to 10% of the purchase amount. How that investment or product performs from that point forward does not affect their compensation as they were paid upfront. They are not required to give you on-going advice once the transaction is complete.
To make things more confusing, many financial professionals are now registering to be both an Investment Advisor Representative and a Registered Representative. These advisors and their firms are commonly labeled as hybrid RIA and Broker/Dealer firms and roughly 26,000 of the 310,000 advisors nationwide operate in both spaces. This type of advisor can and will represent themselves as a fiduciary acting in your best interest, but they are also a broker and can turn around to sell you a product to get paid a commission at the same time. The major issue this presents for the client is it’s difficult to know which hat the advisor is wearing when they are giving you advice. Are they a fiduciary or are they just providing advice that is suitable? How do you know when the hat is changed? How can a client know if they should be paying a flat fee for advice or a commission for a product?
With the financial markets getting increasingly volatile and client lives getting more complex, it is extremely important to select the right professional to advise you on your unique situation. Prior to engaging in an advisor, client relationship, prospective clients should interview their prospective advisor to ensure they know exactly who they are working with and what to expect. You should be asking what type of advisor are you (IAR, RR, both)? How do you get paid? Who do you work for (independent or larger corporate entity)? How will I know when you are giving me fiduciary advice versus suitable advice?
Fortunately, the governing bodies of these professionals make it easy for you to get answers on your own. Every IAR and RR and the firms they represent have public disclosures available by searching their name onhttps://brokercheck.finra.org. These disclosures provide details around education, work history, licenses, compensation, and services offered. They also provided detailed information around any disclosure events an advisor might have in their past history. Disclosure events include certain criminal charges and convictions, formal investigations and disciplinary actions initiated by regulators, customer disputes and arbitrations, and financial disclosures such as bankruptcies and unpaid judgments or liens.
All of this is not to say that there are no good brokers or bad RIAs, but do your research, ask the tough questions, and know who you are working with.
If you want a second opinion on who you are working with and the advice you are receiving, the advisors at Crown Wealth Group are happy to assist. Contactinfo@crownwealthgroup.comfor more information!
Note: statistics in this article are sourced from Tony Robbins 2017 book, Unshakeable