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I've Made My Decision

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This week I feel like a pioneer embarking on a journey to discover new lands, with the difference in this case that many have blazed the trail before me. It’s up to us to learn from their experiences. Perhaps some of you are following this blog for this reason. If so, I hope you’ll benefit in some way.

After much thought and consideration, I have decided to go the RIA route and am very comfortable with the decision. I’ve had a great deal of experience with broker/dealers over the years. I’ve had experience with the largest wirehouse to the largest independent B/D and even though each is a little different, there are many similarities. Not to besmirch those companies, they, like all B/Ds, are subject to the same rules and regulations that tend to provide a degree of difficulty for the advisor. Since laws are generally passed because of a few bad apples, sometimes the pendulum swings a bit too far to one side, all in an effort to protect the consumer. So my decision is perhaps, in part, just a matter of timing, but the RIA platform seems much more attractive.

As an RIA, I’m responsible for creating all of my own agreements. I’ve already written the financial planning service agreement and am working on an asset management agreement. The RIA route also allows me to structure my fees any way I please. One advisor I spoke with charges a flat amount per year for his advice and nothing for the management of his client’s assets. Others charge only an asset management fee. As an RIA, you can have the fee deducted monthly, quarterly, or at any frequency of your choosing. I have decided to charge separately for financial planning advice and asset management. However, if a client engages me to do both, I will reduce the asset management fee. I will elaborate on all of this in the pages of the June edition of Investment Advisor magazine.

Another advantage with the RIA platform is the higher payout. Even though you’ll receive 100% of your fees, you are responsible for providing certain items yourself. For instance, many broker/dealers have some form of portfolio reporting software available for an additional cost. They may also provide you with a Web site for a fee. Then there may be a fee to simply associate with them. This reminds me of our tax system, in which we pay a fee for this and a fee for that. With all the additional charges, a lower payout, and increased regulation, the decision to choose RIA over B/D turned out in the end to be relatively easy.

However, there are a couple of additional things to consider. If you are newer to the business, you may need the support of a B/D while you gain experience. In either case, it’s important to note that you have to be willing to operate a business and take responsibility for its outcome. To state the obvious, you have to bring in more money than you spend. That said; you must operate in a highly ethical manner. ALWAYS do what’s right for the client. Clients will eventually come to understand if you’re really putting their interests ahead of your own.

And when things don’t go as planned, remember this: stressed is just desserts spelled backwards. So, best of luck and as always, I welcome your comments on how you assess fees or any other subject that’s pertinent to this discussion.