Parisian Family Office, CEO. Began Wall Street, 1982. Founded investment firm, CHIPPEWA PARTNERS, Native American Advisors. Active Trader. White Earth Chippewa Tribal member. Was NYSE/FINRA arb. Conservative, raised on Great Plains reservations. Pureblood, clot-shot free. In a world elevated on a dopamine binge, this is his take! Written from MT Ghost Ranch on the Yellowstone River, TN farm Pamelot or San Jose del Cabo, Mexico, CASA TULE'. Always been, will always be, an optimist.

Sunday, June 26, 2011

Alpharetta & Milton Georgia investors wake-up call

It may look like a stockbroker at Merrill Lynch or Morgan Stanley provides the same service as someone who is a registered investment advisor. But nothing could be further from the truth. This distinction is critical to understand no matter how much you trust the individual.  A person who is a broker, is just that. He acts as an agent between a buyer and seller of products, usually for a commission. Legally, an individual who works for a "broker/dealer" must pass a "Series 7" exam, which teaches one about the stock market and securities to prepare the individual to sell commissioned products. Brokers operate under a "suitability standard" under which the broker is required to make investments he judges to be suitable for his clients. He can't sell micro-cap volatile stocks to old ladies. Brokers and their firms are regulated by a "self regulated organization" (not a government agency) called FINRA. In the industry, brokers are measured by the amount of commissions and fees that they generate from selling products. Product providers pay more for "distribution" through brokers.

Registered investment advisors (RIAs) help individuals manage their money. They must pass a "Series 65" exam, which tests how well one knows how to help a client invest and operate under a fiduciary standard. That means an advisor is required to act in his clients' best interests, and disclose to them all conflicts of interest. These advisors are either registered in the state in which they operate, or with the Securities and Exchange Commission.  RIAs are usually measured by assets under management  because the more assets they manage, the more their fees. They submit lengthy ADV II forms online showing any conflicts of interest, sanctions from the SEC, and exactly how they are paid.

RIAs can't use customer testimonials in advertising and must disclose when they pay for client referrals. Brokers can use testimonials and hide fees they are paid for referrals.

A good analogy for the broker versus investment advisor is the difference between an optician and an ophthalmologist. An optometrist conducts eye exams and makes sure that you have healthy eyes but makes money primarily selling you glasses and contact lenses. When you have a cataract, or something serious, you go to a medical doctor—or an ophthalmologist. He has taken a Hippocratic oath to practice medicine ethically. He sells nothing. He puts your health first and can also examine your eyes.

Do you want to trust your money to someone who is just paid for advice? Or a broker who makes money providing advice in order to sell products? Just remember, if you are serious about your retirement assets, you may want to check on the motivation your broker may have for “what they do” to your retirement portfolio.

1 comment:

johnseomaven said...

Applying for your Series 65 license is not a walk in the park. Preparing for your Series 65 licensing exam takes time to study different aspects in becoming an Investment professional specifically an advisor. You will need to have a broad knowledge about economic analysis, investment recommendations and strategies, legal and regulatory guidelines, and professional ethics as well. Taking Series 6, Series 63, or Series 65 simulator courses might help you to easily pass the actual exam.