Registered Investment Advisers (RIAs)* are an important part of the family office but many people don’t know the important difference between RIAs and other financial advisors.
Registered financial representatives have a similar title but are governed by different regulations. The distinctions are important. Registered financial representatives are governed by suitability standards that require them to pair investors with financial advice that is appropriately aligned with the investor’s goals and situation. They are transaction-based service providers who often are referred to as brokers.
A Registered Investment Adviser is an individual or company that provides clients with financial advice, but unlike other financial advisors, RIAs have a fiduciary duty to act in your best interest. RIAs stand out in the financial advisement community – not just because they spell adviser with an “er” instead of an “or,” – but because they have a fiduciary responsibility to their clients where others do not.
The term investment adviser is a legal one that refers to an individual or company that is registered as such with either the federal Securities and Exchange Commission (SEC) or a state securities regulator. RIAs commonly are referred to as asset managers, investment managers, portfolio managers, and wealth managers. Investment adviser representatives are people who work for and advise clients for registered investment advisers.
RIAs manage the assets of high-net-worth individuals and institutional investors. In addition to providing tailored advice, some RIAs offer financial planning services or, if properly licensed, brokerage services. They create and manage investment portfolios with individual stocks, bonds, and mutual funds. Some RIAs only use funds as they can be a way to reduce commission costs for the investor and to streamline asset allocation.
RIAs may work with the same financial products as registered financial representatives but the two are compensated differently. Where a registered financial representative operates entirely on a sales commission basis, RIAs primarily are paid to manage investments for an advisory fee. The fees are charged directly for managing your assets or assisting you with financial planning, although they may earn a commission on certain securities or insurance transactions.
RIAs traditionally served as personal money managers for the wealthy, e.g. individuals with assets valued at $1 million or more. Over time, the role of RIAs has evolved into one of a more general financial planner and counsel. Today, individuals and families with any size portfolios can benefit from an RIA’s services, and that includes everyone served by TSP Family Office.
There are many reasons for wanting an RIA’s help. Finances can be emotional or stressful. You may feel too busy to research investments. Sometimes we are overloaded with conflicting or misleading information. It may be hard to admit that you just don’t understand the complexities and concepts of investing.
With an RIA, you’ll work with a professional guide in a structured, disciplined process. You will learn how to invest rather than gamble on fantasy. An RIA will protect you from impulsive errors. Instead of sales pressure, an RIA will be your personal fiduciary, acting in your best interest.
Here are some things to keep in mind when choosing an RIA. Educate yourself about what the adviser will do for you and how you will be charged. You can obtain background information about individual SEC and state registered RIAs from the Financial Industry Regulatory Authority, the federally-authorized not-for-profit organization that oversees U.S. broker-dealers. You can access that information by using FINRA BrokerCheck or calling toll-free (800) 289-9999. You also can obtain background information from the SEC’s Investment Adviser Public Disclosure database.
Once you’ve screened potential advisers and narrowed your choices, consider their investment philosophies. Tread carefully with any advisor who claims to be able to “create wealth” instead of offering to help manage the wealth you have or will have in the future. Such “creators” often are those who will pitch you overly optimistic promises of performance when it’s impossible to predict the future.
At TSP Family Office, we believe in a holistic approach to managing net worth, not only managing assets. Generally, we believe in the tenets of Modern Portfolio Theory (MPT) and its implementation through passive and/or evidence-based investment vehicles as the appropriate methodology for structuring client investment portfolios. Our investment approach is rooted in the belief that markets are efficient and that investor returns are determined principally by asset allocation decisions rather than through market-timing or stock picking.
We also believe attention should be given to controlling costs and monitoring risks. Tax consequences of financial transactions should be weighed in decision-making. Investment allocations are one part of your overall portfolio where you also need to weigh assets such as your primary and/or additional business interests and their risks, real estate holdings, private equity, precious metals, as well as crypto currencies, liquid investments, permanent insurance, or other alternative assets. An RIA will work with you to be sure you’re not adding any unnecessary risk.
Investors should shun advice to chase performance markers or peg investments to a specific asset mix or market. Equip yourself to make informed decisions about managing risk and allocating resources and net worth by learning how the pieces fit together in a plan tailored to your situation.
TSP Family Office is here to work alongside you, helping you to move beyond isolated tactics to becoming truly strategic in your decision-making. To learn more, call us today at (772) 257-7888.
NOTE: How We Spell “Adviser” Although most people would use an “o,” we purposely spell adviser with an “e” when we talk about Registered Investment Advisers. We do this because the federal laws that govern this type of investment professional spell the title this way. It reduces confusion if we are consistent with that style. When we use the “o,” we are not referring to a Registered Investment Adviser.