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Why Use Independent Investment Advisors

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Finom works only with independent Registered Investment Advisers (RIAs).  We believe independent RIAs provide better and more diverse service, face fewer conflicts of interest, and fulfill a higher level of fiduciary duty to their clients.   

An RIA is an entity who, for compensation, engages in the business of advising others on investments in securities.  Independent RIAs are not affiliated with a larger financial firm or organization; they are typically individuals or small groups.  RIAs are registered either with the Securities and Exchange Commission (SEC) or with one or more States, and are regulated by the Investment Advisory Act of 1940 or by state securities laws as applicable.  The investment professionals at an RIA who provide investment advisory services are called Investment Adviser Representatives (IAR).  These representatives are typically registered with the States in which they have a place of business, and typically have passed appropriate certification examinations (typically the Series 65 Exam, or a combination of Series 7 and 66 Exams). 

The basic difference between an RIA and a non-RIA (such as the investment management arm of a bank, wirehouse, or broker-dealer) is the fiduciary obligation owed by RIAs to their clients.  By law, RIAs are fiduciaries of their clients; as fiduciaries, they must place the client’s interests before their own in all circumstances.  RIAs must, for example, select a brokerage firm, choose a sub-adviser, give asset allocation advice, or trade securities in a client account, with the interest of the client foremost in mind.  This fiduciary obligation is especially important when the interests of the client and adviser are at odds. 

Non-RIA investment professionals (at a bank, wirehouse, or broker-dealer) need not meet this fiduciary standard.  Instead, they only face a suitability standard; they are not required to choose the best investment for you, but only a suitable one.  A broker-dealer representative is free to recommend an investment that offers yields him the greatest commission revenue, but is far from the “best” investment for your goals and circumstances.  (Read more on fiduciary vs. suitability standards here.)

The starkly different compensation regimes (in both source and structure of payment) of RIAs versus non-RIAs reflect their unequal obligations.  Independent RIAs (like those we feature on Finom) are almost exclusively “fee-only” advisers, compensated as a percentage of your assets under their management.  Broker-dealers and other non-RIAs, on the other hand, are primarily compensated through commissions derived from products they sell to investors.  Further, RIA clients typically pay brokerage and transaction costs separately; occasionally they are lumped in with advisory fees as a ‘wrapped’ fee.  In those rare instances where RIAs on Finom are also broker-dealers, any conflicts of interest are disclosed and addressed in the RIA’s ADV brochure.  [Click here more on whether investment advisers are worth the fees they charge.] 

Independent RIAs therefore have no incentive to “push” specific products or services on to you; they are free to make decisions as your fiduciary, in your stead, with your interests foremost in mind.  Non-RIAs, however, may place your assets in products that earn them the most commission revenue, just as long as they are “suitable” for your circumstances based on a cursory review. 

Finally, independent RIAs (unlike broker-dealers and large banks) typically know their clients personally, often over long period of time, sometimes across generations.  As independent RIAs, advisers on Finom tend to be strategic advisers to families and institutions, and trusted stewards of their investment wealth.

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