Why We're Different than Traditional Advisors (What the Industry Doesn't Tell You).

There are generally four types of investment advisors within the financial industry; and more often than not, investors seldom know what kind of advisor they have or how to tell if the approach of their advisor is in their best interest.

The four types of advisors are as follows:

Retail Advisors (Firm Advisors)

Retail Advisors are typically employed by big investment houses or banks. They often have a securities license that allows them to sell securities or charge a fee. Because they are employees of a bigger firm, they seldom employ a staff of their own, which limits the amount of in-depth research apart from their employer. They also are often limited by the use of technology and independent research due to the large firm's compliance and reporting issues. Equally, because they are employees, this limits their ability to create products or go outside the big firm's recommended list. But even if the freedom existed, because they are employees, a significant portion of their revenues go to the big firm. That minimizes the resources needed if an advisor wanted to create or use products that the large firm doesn't support. How can this impact investors? Advisors are limited in the amount of independent research and controlled by a recommended list and this can often minimize the scope of knowledge (technology) and products. Also, because of the advisor's payout, the clients are often paying higher fees.

Possible influences and impact using retail advisors:

• Advisors charge a fee for advice but generally don’t have teams of portfolio experts; they don’t actively manage money directly.
• Portfolio technology is often not used by retail advisors because they’re actually only acting as an advisor to third-party managers.
• The fee of products that advisors sell is often influenced by how much they get paid, which can sometimes influence their decision-making process.
• Firms often limit the number of choices that retail advisors have to sell.
• Advisors often have an investment advisor license that allows them to give advice, but seldom do they have the knowledge or skill to manage portfolios directly.

RIA (Registered Investment Advisors)

Registered Investment Advisors have grown in numbers over the last several years in part because it's easy to get the Series 63 license and you don't have to hold licenses like the Series 7 or Series 24. Also, as an RIA you are regulated under the SEC (Securities Exchange Commission) where a Series 7 license is under FINRA, a much more scrutinized process and harder license to acquire. As an RIA, you are allowed to charge an advisor fee on top of the mutual fund or other product costs like ETFs. While many RIAs have different business models, many of them use both equity and bond mutual funds and allocation models. Because RIAs are fee-only advisors, seldom do you see them buy individual securities like bonds or individual equities. Often, because of the scope of their work and limitations of their license, they don't have a robust team with technology. They are limited by the guardrails of their license.

Clients are limited by Registered Investment Advisors in the following ways:

• Investors are often put in model portfolios, regardless the of the size of their portfolio or their personal needs.
• Pooled ETFs and mutual funds are typically what advisors use because promoting third-party funds is their only option.
• Bond products are preferred over managing bonds directly. Unfortunately, clients face significant disadvantages when buying bond funds.
• Advisors often charge an annual fee no matter what the client's needs are, which drives up the client’s cost.
• Bond fund cost, low yield, and annual advisor cost all mean less net income to investors.
• Registered Investment advisors advise for a fee, but are often limited in scope because they don’t own or manage assets directly.
• Advisors often have one license and not a Series 24, which would allow them to own a fully integrated investment firm.
• An advisor who holds a license at a third-party investment firm typically cannot sell products or services not offered by that firm.
• Because RIAs tend to use mutual funds or ETFs, seldom are investors fully knowledgeable about the hidden fees within the products.