One of the most important differences between an RIA and a broker-dealer that historically has existed is one that many people are not aware of. An RIA has a legal obligation called a fiduciary duty. Fiduciary simply means an advisor is required by law to offer financial and investing advice that’s best for the client, superseding the interests of the firm and its advisors.
Broker-dealers, on the other hand, until recently were only held to what’s referred to as a suitability standard, rather than a fiduciary standard. This means that their advice was required to be “suitable” for the client at that particular time. The suitability standard is less stringent than the fiduciary standard in terms of the advisor’s obligation to make recommendations that are in the client’s best interest. Additionally, at both broker-dealers and wirehouses, advisors have often been put under pressure to sell and reach production requirements with complex compensation grids, sometimes incentivizing the sale of certain investments and financial products. Regulators have attempted to address this by enforcing sweeping reform, “Regulation Best Interest: The Broker-Dealer Standard of Conduct,” commonly referred to as “Reg BI.”
Another main difference between an RIA and a broker-dealer is in the way they are compensated. RIAs either charge their clients a percentage of assets under management or a fixed or hourly fee. Broker-dealers, in contrast, receive most of their compensation through commissions based on the investments, financial products and activities or services they recommend and sell.
After careful consideration, our preferred custodian and clearinghouse is Charles Schwab (“Schwab”), though the choice belongs to the client of course. Here are some reasons why we feel confident utilizing and recommending Schwab.
Schwab is the leading custodian to independent investment advisors. It is the industry leader and the trusted custodian of over 3 million accounts. Schwab supports over 7,500 advisors with over $3.85 trillion* in assets under management, and boasts over 30 years of experience (since 1987) supporting the independent advisor and their clients. They serve more RIAs and hold more assets under management than any other custodian. (*As of November 2019)
Schwab provides us with an array of tools and services that further empowers our firm to serve you better, in such ways as:
· Insights, resources, tools and access to a wide range of investment products, technology and expertise.
· $0 Standard online trading equities. No one is lower than Schwab among ETrade, Fidelity, TD Ameritrade, or Vanguard. https://www.schwab.com/why-schwab
· $0 online commission ETFs. Trade 2,000+ ETFs across a range of asset classes and fund companies.
· No-load, no-transaction-fee when traded online
· Automated investing and personal guidance.
· Schwab's Security Guarantee: Schwab will cover 100% of any loss due to unauthorized activity in a Schwab account.
· Helps simplify the transition process and makes it seamless
· Stable capital structure, strong liquidity and a conservative approach to risk management.
· Schwab provides SDG with the back-office support and technology we need to best serve you
Additional benefits SDG clients receive by maintaining their accounts at Schwab:
· Schwab Mobile App
· Paperless transactions and statements
· Year-end reporting
· Online account access to real-time positions, transactions, quotes and market news
· Convenient account access through a specialized team of service representatives
· Block trading capabilities. Block trading allows portfolio managers to purchase or sell a large quantity of securities executed as a single trade, and then allocate those securities to multiple clients. This tool can create cost savings and operational efficiencies. Smaller underlying investors of the investment manager are able to realize the same price benefits that a large institutional trader would by pooling their assets together. Trades can potentially be executed at a price that is discounted relative to the current market price.
· Direct access to Schwab's equity trading desk
· Next-day notice of deposits, withdrawals and account transfer progress
*Data obtained from the following Schwab brochure: https://www.wmsadvisors.com/files/2266/Schwab%20A_Winning_Relationship_WEB_FINAL2.pdf
Sorting out priorities and properly allocating resources for yourself can be challenging. People's emotions are tied to their money and sometimes that can interfere with their ability to make sound decisions, making their path misaligned with their needs, goals and preferences. Investors who work on their own tend to either be too aggressive or too conservative with their investment portfolio.
While many of our clients have the ability, they don't have the desire or the time to educate themselves on the various proven financial strategies or sort through the many companies and products available leaving them in a less-than-ideal position to make well-informed decisions, offset risk and avoid duplication of investments.
A good financial advisor will listen. Quality planning starts with an effective discovery process administered by someone who is genuinely interested in your comfort level, needs, goals and preferences. They will help you prioritize and make sure all your ships sail in the same direction. They know how to coordinate with your other legal, accounting and financial advisors so they are all working in harmony towards helping you achieve your financial objectives and reach your financial destination.
Professional advisors can have access to the best technology available in today's landscape to author a financial plan tailored to your situation and run forecasts to gauge where you are headed in relation to where you want to go and narrow any gap between those two points until your probability for success is maximized.
Your advisor will monitor your progress and changes in the market, updating you with important information and offering recommendations to tweak your strategy accordingly and take advantage of any new opportunities as they present themselves.
Money and financial decisions are too often a cause for conflict in a family or a business. Collaborating with a professional financial advisor can help balance competing priorities so that everyone involved feels heard and is assured their concerns and objectives are being addressed in a fair and reasonable way.
You wouldn't set out on a road trip without a map or GPS. First, you need to define your destination. For many, thoughts regarding financial goals are unorganized which can lead to a lack of clarity followed by indecision. In order to determine the most efficient route you are comfortable taking to reach your financial destination, you first need to identify where you are going, the distance between those two points and the resources available to get you from A to B. Then you can explore your options and select the best strategies that fit your needs. The process of planning is perhaps even more valuable than the plan itself. But a well developed plan becomes a reference point to help guide your actions and monitor your progress.
Time. The more time you are invested, the better your probability of success in achieving the amount of growth you seek. Additionally, time freed up is more time you can spend with the people you love and on the things you love to do.
Technology can streamline your money management efforts, bring you the latest data and investment information more quickly to your fingertips, provide you with valuable insights and organize data in a meaningful way that is easy to review.
The right technology can also expedite transactions and make doing so easy. Additionally, it can enable you to collaborate with your advisor in real-time (particularly when it comes to financial planning and trading) even when you and your advisor are not in the same physical location. With the latest technology coupled with a firm's infrastructure, you can also have the capability to take a hands on approach to your accounts, allowing you to make changes, such as trades. With the right platform, you might also be able to reduce your transaction costs compared to other platforms.
There are many apps available today which can help you manage your financial house. Unfortunately, many of them do not "talk" to each other. That can make analysis and planning clumsy and inefficient. We have access to a unifying solution that aggregates data from various apps and accounts so that all of your data can get propagated and synchronized seamlessly with consistency. This reduces discrepancies and confusion while promoting clarity and ease in managing your financial house.
Changing custodians does not require you to change your investments. This can be done without any transfer costs, although the firm at which an account is held might charge a fee to close that account. When moving assets in “like kind”, you can avoid creating tax liabilities.
Within our RIA model, SDG can help you avoid extraneous transaction fees and trade commissions.
We utilize a competitive asset-based management fee, which for most clients is a cost-effective solution to their ongoing investment needs, ultimately putting more of your money to work for you.
Additionally, we have access to many tools that can help you navigate today's financial landscape. That includes the ability to see all of your investments, banking and insurance accounts in one mobile app, along with access to your Financial Plan 24-7 so you can monitor your progress, net worth, budget and cash flow while receiving important alerts. By having your financial plan available online, with real-time information, it serves as a collaboration tool between you and your advisor like you may never have experienced before.
Securities cleared through Charles Schwab.
Advisory services offered through Oxinas Partners, which is a registered investment advisor with the U.S. Securities and Exchange Commission.
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