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They call themselves fee-based, dual-registered or hybrid advisors, but I’ll call them “part-time fiduciaries.” Don’t hate me for this, but I recently referred my close friend to one of them. Despite the bombardment of propaganda from fee-only RIAs, these part-time fiduciaries are pretty good.
Shame on you for shaming them!
Let me address what I take an issue with (if you’ve read my other articles you’ll know this already) which is the deliberate shaming of broker dealer reps that is waged most by fee-only RIA firms. And by the way, this comes at the expense of their own brand equity.
Broker dealer reps who are dually registered are bound to follow suitability standards (when they put on their b/d hat) that are obviously not as strict as fiduciary standards.
- Yes, if they get to take home a bigger paycheck by putting on their broker hat instead of their RIA hat, they absolutely will do that.
- Yes, they can be opportunistic about things.
- Yes, they absolutely do get to choose to conduct business as a commissioned broker rather than RIA firm if that pays them better.
- Yes, they are only going to act in your best interest when it suits them.
Clients should clearly be made aware of this because it’s not ideal. But really, let them make the point and then allow the client to decide for themselves instead of proselytizing.
By the way, have you ever seen some of the things that fee-only RIA firms have said? And they get away with saying them because they’re not heavily scrutinized by FINRA. I’ve seen borderline lies and misrepresentations, from performance being better to costs being lower:
- Performance being better? Has any study conducted ever proven that? Tweet it to me or post it on APViewpoint, because I didn’t get the memo.
- Costs being lower? That’s another whopper. While it’s true that the slice of commission taken is typically larger than what an RIA firm’s fee would be, it can actually come out cheaper in the long term depending on how frequently you trade. Let’s say that the broker makes one trade in 10 years. An RIA firm could be taking more over 10 years since their fee is ongoing.
These claims are not true all the time. If you were at a FINRA shop, they would never let you make untrue statements. You’d be fined, wrist-slapped, written up and maybe even get your license revoked in no time. It’s only because RIA firms are far less regulated than broker dealers that they get away with this.
It’s also hypocritical. RIA firms are incented to urge people not to pay down their mortgage, start a business, pay down debt or buy real estate. Why? So they can put your money into mutual funds, charge you 1.5%, and make their 1% per year on the heap of cash sitting idle in your account.
There are broker dealer reps who have lied, cheated and stolen from clients.
There are investment advisor representative (IARs) who have lied, cheated, and stolen from clients.
But show me the study confirming that more fraud and crime is committed at broker dealers than at RIA firms and I’ll stand corrected. And while you’re at it, make sure you take into account that there are way more broker dealer reps than advisors at pure RIA firms. Pure RIA firms, solely fee-based, are a relatively small percentage of the industry. So the comparison basis has to be relative not absolute.
Let it go, RIA firms!
Read the full article here by Sara Grillo, Advisor Perspectives
