People all over the world are challenged by their finances. In fact, according to a 2015 study by Financial Planning Standards Board, only 17 percent of consumers agree they are very knowledgeable about financial matters, and just 22 percent are confident they will achieve their financial goals. Survey respondents said trust was an important factor in choosing a financial professional, but unfortunately, nearly two-thirds said they didn’t know whom to trust!
Here in the U.S., when it comes to seeking help with their finances, consumers have a number of options, but sometimes have a difficult time choosing the best option for them. Some investors find comfort in big brand names like Wells Fargo, Merrill Lynch or J.P. Morgan instead of working with an independent Registered Investment Advisor (RIA) like M.J. Smith & Associates. The bottom line is, while titles may be similar, not every financial advisor operates in the same way.
An Advisor Is an Advisor Is an Advisor, Right?
In the United States, the terms “financial advisor” and “financial planner” are very loosely regulated, and many variations of the titles exist, such as “investment advisor,” “Registered Investment Advisor,” “financial consultant,” “financial planner,” “wealth manager” and more. A financial planner is one type of financial advisor, but even within the financial services industry, it is difficult to find agreement as to what each title actually means. To fully understand the differences, consumers need to understand their advisor’s credentials, study the standards the advisor follows, the culture of the company in which he or she works, the level of service provided, and the fees to be paid.
M.J. Smith & Associates is an independent RIA, and many of our advisors are CERTIFIED FINANCIAL PLANNER™ professionals. (Several hold other credentials, such as the highly respected Chartered Financial Analyst or Certified Investment Management Analyst designations, as well.) CFP® professionals must meet strict education, experience, ethics and exam standards, and must commit to placing their clients’ interests first. CFP® certification focuses on the process of financial planning, rather than on financial products, and CFP® professionals tend to take a holistic approach to working with clients, reviewing all aspects of a client’s situation across a large variety of financial planning activities. CFP® certification dovetails well with what we do as an RIA, which requires us to meet a fiduciary standard of care for our clients.
Not all those who call themselves a financial advisor or planner place their clients’ interests first. Those whose primary responsibility is to sell a product, such as a security or an insurance product, follow what’s known as a suitability standard – meaning their recommendations must only be “suitable” for your personal situation. (Last year, Forbes explored the difference in this article.)
Last year, a well-known bank/wirehouse got into trouble when employees – desperate to reach sales goals – opened unauthorized accounts on behalf of some bank customers. Cross-selling, or the practice of selling additional or complementary products to a customer or prospect, is a common practice in the banking and wirehouse worlds. That’s because sales and revenue help to drive the stock prices of big banks. While independent RIAs also have financial goals, they tend to be more oriented to building client relationships, not selling products.
The culture at an RIA – particularly at a boutique firm like ours -- can be similar to that of a family office. While you have a lead advisor at M.J. Smith & Associates, we take a team approach to evaluating investments, and leverage each other’s strengths to help provide our clients with top-quality service. We don’t take a one-size-fits-all approach to serving clients, while a bank representative may depend on direction from the corporate office to treat certain types of clients in certain ways.
Finally, let’s talk fees. In many cases, wirehouses and banks include an extra layer of costs within the investment vehicles themselves. Called “revenue sharing,” this practice involves adding additional non-investment related fees to the expense ratio of a mutual fund. While this practice may be on the decline, it still happens. M.J. Smith & Associates never receives these kinds of payments. In fact, we work to avoid these costs whenever possible.
In short, it pays to ask questions and conduct your own research before choosing the right financial advisor to meet your needs. If you can invest at least $1 million, and are looking for an advisor to help you with retirement planning, tax planning, estate planning, asset management, risk management, and investments, I invite you to contact us for a complimentary, no-obligation consultation. We would be glad to show you how our capabilities can work for you.