Financial advisors

[ChiefGator]

I thought a thread on financial advisors might be interesting. For myself I have been burned in the past with an advisor so now I am my advisor.

The idea that a "fiduciary" means that the advisor will always put your benefit ahead of theirs is in my view an overstatement. I hopefully does mean that they won't churn your account or propose high fee investments for you.

Comment as you desire.

 

[78]

Two kinds, Chief. Brokers and advisors. Brokers get paid a commission, advisors a fee whether it's by the job, hourly or a fee percentage based on assets under management. That removes the incentive to sell as there are no fees on selling other than nominal trading fees.

Fiduciary by its own definition connotes advisor, although Certified Financial Planners are held to the fiduciary standard regardless how they are compensated.

Some people need advice, some people don't.

 

[ChiefGator]

What's the Difference between a Broker and Financial Advisor?

I don't really see a difference for me. Both push some investments that they say are good for you, I don't allow anybody to manage my money although I have friends who allow Fidelity to do so.

Thanks for the input.

 

[bradgator2]

Between my 1st and 2nd job, I stopped by a local Edward Jones office. Mainly because I wanted to make sure I got my previous 401k transferred properly to my own IRA. He also established my Roth IRA for me and my wife. And got us both on life insurance. I really liked my guy and had zero issues. Except, again..... no real way to find the fees.

The owners of my current company convinced me to switch to their people. I never had a connection with the main dude, but I did it anyway. Huge mistake.

I am actually back with the guy in the 1st paragraph but it is now setup as a fiduciary model. I can at least see the fees every month.

I'm not certain if I am ok with the fees. He has made some things for easy for us, and that deserves compensation. I think I have learned enough over the years where I can now go it alone. The problem is if I die, I know my wife couldnt. Right now... she just makes one phone call and he'll handle all of it.

 

[78]

What's the Difference between a Broker and Financial Advisor?

I don't really see a difference for me. Both push some investments that they say are good for you, I don't allow anybody to manage my money although I have friends who allow Fidelity to do so.

Thanks for the input.

How do you NOT see a difference? Being an advisor removes the conflict of interest element. Brokers get paid a commission for moving your money around, advisors don't. Brokers' compensation isn't directly tied to how well you do, advisors' is. There's a huge difference.

That being said, an advisor fee is not the best solution for everyone or for every one of everyone's accounts. For example, you're older and you own low-basis stock in a post-tax account. You stand to get a stepup in basis at death. You're essentially garaging the account. That's probably not a good fit for managed money. You have no intent on selling.

Managed money tends to make more sense for retirement accounts due to deferral of income and longer-term investment horizons.

Like anything else, it all depends on a number of circumstances. BTW, most broker-dealers nowadays are hybrid firms. The reps can serve as broker or advisor.

 

[FireFoley]

I thought a thread on financial advisors might be interesting. For myself I have been burned in the past with an advisor so now I am my advisor.

The idea that a "fiduciary" means that the advisor will always put your benefit ahead of theirs is in my view an overstatement. I hopefully does mean that they won't churn your account or propose high fee investments for you.

Comment as you desire.

My entire career has been spent in the markets, mostly on the floor, mostly trading my own money,. With that said, I will not generalize about all advisors, etc., but I agree with the Chief. B/C no one is going to care as much about YOUR money as YOU are!!!!

 

[ChiefGator]

My entire career has been spent in the markets, mostly on the floor, mostly trading my own money,. With that said, I will not generalize about all advisors, etc., but I agree with the Chief. B/C no one is going to care as much about YOUR money as YOU are!!!!

Thanks and of course anybody who say "all" has made a mistake.

 

[GatorInGeorgia]

Two kinds, Chief. Brokers and advisors. Brokers get paid a commission, advisors a fee whether it's by the job, hourly or a fee percentage based on assets under management. That removes the incentive to sell as there are no fees on selling other than nominal trading fees.

Fiduciary by its own definition connotes advisor, although Certified Financial Planners are held to the fiduciary standard regardless how they are compensated.

Some people need advice, some people don't.

What's the Difference between a Broker and Financial Advisor?

I don't really see a difference for me. Both push some investments that they say are good for you, I don't allow anybody to manage my money although I have friends who allow Fidelity to do so.

Thanks for the input.

How do you NOT see a difference? Being an advisor removes the conflict of interest element. Brokers get paid a commission for moving your money around, advisors don't. Brokers' compensation isn't directly tied to how well you do, advisors' is. There's a huge difference.

That being said, an advisor fee is not the best solution for everyone or for every one of everyone's accounts. For example, you're older and you own low-basis stock in a post-tax account. You stand to get a stepup in basis at death. You're essentially garaging the account. That's probably not a good fit for managed money. You have no intent on selling.

Managed money tends to make more sense for retirement accounts due to deferral of income and longer-term investment horizons.

Like anything else, it all depends on a number of circumstances. BTW, most broker-dealers nowadays are hybrid firms. The reps can serve as broker or advisor.

You’ve got to be careful b/c there’s so much misinformation floating around. This article is a perfect example and it doesn’t do anybody reading it any favors. The financial service industry is rife with various terms that are confusing. Case in point is the term “financial advisor” in this article. Many brokerage firms like Merrill Lynch & Morgan Stanley call their reps financial advisors. Truth of the matter is they are still brokers and they are prohibited by law from acting as fiduciaries. Whether a broker makes a commission or puts you in a fee based account, he’s still a broker and not a fiduciary. The better question to ask is if the advisor in question is a registered rep (I.e.- Series 7 licensed) working for a broker/dealer or is he/his firm a Registered Investment Advisor? If the person is a registered rep (regardless of if his biz card says he’s a financial advisor or some other corporate created title) then he is a broker and not a fiduciary. If the person is working as an RIA, then they are a fiduciary working on a fee basis.

 

[78]

You’ve got to be careful b/c there’s so much misinformation floating around. This article is a perfect example and it doesn’t do anybody reading it any favors. The financial service industry is rife with various terms that are confusing. Case in point is the term “financial advisor” in this article. Many brokerage firms like Merrill Lynch & Morgan Stanley call their reps financial advisors. Truth of the matter is they are still brokers and they are prohibited by law from acting as fiduciaries. Whether a broker makes a commission or puts you in a fee based account, he’s still a broker and not a fiduciary. The better question to ask is if the advisor in question is a registered rep (I.e.- Series 7 licensed) working for a broker/dealer or is he/his firm a Registered Investment Advisor? If the person is a registered rep (regardless of if his biz card says he’s a financial advisor or some other corporate created title) then he is a broker and not a fiduciary. If the person is working as an RIA, then they are a fiduciary working on a fee basis.

No so. A financial professional can simultaneously serve as a broker and fee-based investment advisor associate for a registered firm and therefore his clients. The number of hybrid broker-dealers far outnumbers those that aren't.

Further, it's faulty to assume all brokers are untrustworthy because they get paid by commissions. Are all realtors untrustworthy, too? You may snicker and say yes, but you know that's not true. It boils down to what's best for the client in terms of compensating you for your time and expertise, which I tried pointing out yesterday in a separate post. There are many instances where an investor is far better served in a brokered account versus a fee-based one, which in general generate more revenue for the member firms. Moreover, the amount of abuses in the industry from overcharging of fees, co-mingling of assets and outright thievery in the RIA sector easily rival the abuses in the broker arena, sometimes more. The regulatory oversight of RIA's is not up to the standards set for broker-dealers, esp broker-dealers that offer brokered and fee-based services.

 

[GatorInGeorgia]

No so. A financial professional can simultaneously serve as a broker and fee-based investment advisor associate for a registered firm and therefore his clients. The number of hybrid broker-dealers far outnumbers those that aren't.

Further, it's faulty to assume all brokers are untrustworthy because they get paid by commissions. Are all realtors untrustworthy, too? You may snicker and say yes, but you know that's not true. It boils down to what's best for the client in terms of compensating you for your time and expertise, which I tried pointing out yesterday in a separate post. There are many instances where an investor is far better served in a brokered account versus a fee-based one, which in general generate more revenue for the member firms. Moreover, the amount of abuses in the industry from overcharging of fees, co-mingling of assets and outright thievery in the RIA sector easily rival the abuses in the broker arena, sometimes more. The regulatory oversight of RIA's is not up to the standards set for broker-dealers, esp broker-dealers that offer brokered and fee-based services.

Yes, some people in the industry are hybrids but that wasn’t what I was addressing. Several of the more “traditional” firms like the Merrill Lynches, Morgan Stanley’s, UBS, etc. call their reps “financial advisors” but these reps do not act as RIA fiduciaries. They are still acting as registered representatives (I.e.-Series 7 license) who aren’t taking a fiduciary role, despite their job title.

The hybrid advisors are typically found at smaller firms that don’t have the brand name of the bigger wirehouses and regional broker/dealer firms. Hybrid reps are a very small part of the market, albeit an area that has seen growth in % terms.

As far as brokers being untrustworthy, I never addressed that area so I’m not sure how that applies.

 

[BMF]

I have an adviser that charges a fee. I hate paying the fee, but I can see that he knows a lot more than I do.

I sold a rental property I've had for 18+ years and made over six figures last April. The markets were very volatile and I was nervous about losing the money so I did some research and put the money in a TD Ameritrade account and it's managed by the adviser - he charges a 1.5% fee (which lowers the higher the account gets). I'm putting $500/month into the account as well.

So far, the account is down about 3% since I opened it - which includes the fees I've paid so far. My personal Roth IRA that I have through USAA is still down about 12% from it's peak - it was down more after the market tanks in late 2018. So, w/ that performance I'm happy being close to even w/ the TD account.

 

[78]

Yes, some people in the industry are hybrids but that wasn’t what I was addressing. Several of the more “traditional” firms like the Merrill Lynches, Morgan Stanley’s, UBS, etc. call their reps “financial advisors” but these reps do not act as RIA fiduciaries. They are still acting as registered representatives (I.e.-Series 7 license) who aren’t taking a fiduciary role, despite their job title.

The hybrid advisors are typically found at smaller firms that don’t have the brand name of the bigger wirehouses and regional broker/dealer firms. Hybrid reps are a very small part of the market, albeit an area that has seen growth in % terms.

As far as brokers being untrustworthy, I never addressed that area so I’m not sure how that applies.

I think you're splitting hairs. Technically the only real fiduciaries are entities or individuals that legally act on behalf of another person. A trustee of a trust comes to mind.

Try and tell me, on the other hand, when I have discretionary authority to act on behalf of a client while being compensated by a flat fee that I'm not acting in a fiduciary manner. I can't even fund that account until I prove to my compliance department that the account in question not only fulfills the suitability requirement but has addressed what is in the best interests of the client in terms of overall cost.

Regarding hybrid BDs, roughly half in the US.

 

[GatorInGeorgia]

I think you're splitting hairs. Technically the only real fiduciaries are entities or individuals that legally act on behalf of another person. A trustee of a trust comes to mind.

Try and tell me, on the other hand, when I have discretionary authority to act on behalf of a client while being compensated by a flat fee that I'm not acting in a fiduciary manner. I can't even fund that account until I prove to my compliance department that the account in question not only fulfills the suitability requirement but has addressed what is in the best interests of the client in terms of overall cost.

Regarding hybrid BDs, roughly half in the US.

Independent RIA are considered fiduciaries. I think you’re still missing my point, though...a person shouldn’t rely on the corporate given title to determine if the financial person they may hire is a broker or an advisor acting as a fiduciary. People throw the phrase “Financial Advisor” around so much that it means different things in different situations.

 

[ChiefGator]

It is very simple for me, none of them are so trustworthy that I would allow them to manage my money. Some can be trusted to at least give you decent information, but even them are not that great. That is why for me (not anybody else) they are not trusted by me.

 

[78]

Independent RIA are considered fiduciaries. I think you’re still missing my point, though...a person shouldn’t rely on the corporate given title to determine if the financial person they may hire is a broker or an advisor acting as a fiduciary. People throw the phrase “Financial Advisor” around so much that it means different things in different situations.

GIG, do you do this for a living? If so, what do you call yourself? The hair splitting over who is and who isn't is mind numbing. Just look the person in the eyes and say, "How do you get paid." If it's fees, they are in essence acting as a fiduciary.

 

[ChiefGator]

GIG, do you do this for a living? If so, what do you call yourself? The hair splitting over who is and who isn't is mind numbing. Just look the person in the eyes and say, "How do you get paid." If it's fees, they are in essence acting as a fiduciary.

So if you get a fee you have to be a fiduciary? Perhaps with some recent laws, but in the past this meant nothing. People churned your accounts, and made money for nothing, or even worse than nothing.

 

[no1g8r]

Maybe I'm oversimplifying it, but by my way of thinking:

1) If an agent is paid by commission, he is not accountable for acting in the best interest of the customer, and I have no interest in working with him
2) If an agent is fee paid, it is in his best interest to act in my best interest, particularly if his fee is based on the percentage of my assets that he is managing. However, he is not compelled to act in my best interest
3) If an agent is fee paid, and is a registered investment adviser with the SEC or a state governing body, then he is legally bound to be acting in my best interest, and is thus compelled to do so.

If I'm going to be seeking advice from an adviser, I'm going with #3.

 

[GatorInGeorgia]

GIG, do you do this for a living? If so, what do you call yourself? The hair splitting over who is and who isn't is mind numbing. Just look the person in the eyes and say, "How do you get paid." If it's fees, they are in essence acting as a fiduciary.

78, fair enough. We’ll leave it at that.

 

[78]

So if you get a fee you have to be a fiduciary? Perhaps with some recent laws, but in the past this meant nothing. People churned your accounts, and made money for nothing, or even worse than nothing.

I apologize for any muddying of the facts I may have created, however inadvertent it was. It's a complex subject. To your question, my answer is no. Only a few situations create a real, actual fiduciary environment. However, there can be no denying that being paid on a fee basis removes real and imagined conflicts of interest.

From a practical standpoint: If you're not being paid for selling and buying, how can you be accused of not acting in the client's best interest? You're in it together.

 

[ChiefGator]

I apologize for any muddying of the facts I may have created, however inadvertent it was. It's a complex subject. To your question, my answer is no. Only a few situations create a real, actual fiduciary environment. However, there can be no denying that being paid on a fee basis removes real and imagined conflicts of interest.

From a practical standpoint: If you're not being paid for selling and buying, how can you be accused of not acting in the client's best interest? You're in it together.

Perhaps I am misinformed, but an advisor can tell you a particular investment is good for you, when he gets a commission for selling it.

Some of my sources insist that you should only deal with a fee based advisor, they get no commissions for buying and selling and no money for getting you into an investment.

Now a fiduciary must understand their client so well that they can simulate their desires, this is very difficult to impossible in my view.