Registered Investment Advisor

The following two explanations, describing a Registered Investment Advisor (RIA) like ElderAdo Financial, are excellent at further informing the investor on how to choose an investment counselor. ElderAdo Financial does NOT receive commissions from investment or insurance products.

The first excerpt is taken from Suzy Orman’s book “You’ve Earned It, Don’t Lose It” pages 15 and 16.

“A popular alternative is the registered investment advisor (RIA). When such advisors manage your money, they receive a fixed percentage of the portfolio as their fee. This can be ¼ percent to 2 percent of the amount of money they have under management for you. Fees should be paid on a quarterly basis and are not to be taken up front.

These people do not participate in commissions and are in the unique position of being on the same side of the fence as you. The more money they make for you, the more money they make for themselves.

Most RIA’s do not partake in commissions, but that does not mean there is not cost to you to buy or sell these investments. Because of this, you want an advisor who will hold your funds at a discount brokerage house such as Charles Schwab or Fidelity, so it will cost you less. It also benefits the advisor to do so because if you spend a lot of money on commissions, there will be less in your account to base his or her fees on. RIA’s also tend to purchase investments that are commission-free, such a no –load mutual funds, for the same reason. When they purchase stocks at a discount brokerage house, the cost can be 75 to 90 percent less than what a full-service firm charges. Many RIAs require a minimum amount to open an account, starting at $50,000 to $100,000, with the majority around $250,000.”

This final quote is from the Book “Advising the 60+ Investor” by Darlene Smith, Dale Pullman, and Holland Tulles, page 14. This text will describe the difference between a full service commission broker and a fee-only investment advisor. ElderAdo Financial is a fee-only investment advisor.

“With full-service commission brokers, one must watch for conflict of interest. Brokers, no matter what they may say, are paid to trade. Given their need to generate transactions in order to make a living, they may encourage the client to engage in excessive, tax-inefficient trading in the investment portfolio. Full-service brokers can be useful to clients who are sophisticated enough to make their own investment decisions and just need a little extra advice and help. Caution must be taken, however, before relying solely on a commission broker as a financial advisor. Generally, brokers have too many clients and are too focused on generating transactions to really take every client’s specific needs in to account Also, brokers are not always adequately trained to have complete control of an investor’s finances.

On the other end of the spectrum, fee based investment advisors generally are given power of attorney to make and execute investment decisions in the client’s account. Compensated on a percentage of assets under management, rather than on commissions, fee- based advisors are generally held to have less conflict of interest. Since they are not compensated by commissions, they have no incentive to engage in excessive trading or to market specific products. Usually trading in the client’s account through a broker at discounted institutional commission rates, the investment advisor ‘sits on the same side of the table’ as the client. Fee-based advisors are appropriate for investors who need more help with their investments or who do not want to take the time to worry about their investments on an ongoing basis. Care must be taken to ensure that the advisor is honest, highly trained, and experienced in various market environments. The advisor’s fees should be reasonable as well. In today’s marketplace, fees in excess of 1% are probably too high, especially when one realistically considers the rates of return that will be available in coming years. Many advisors routinely charge 1.5% to 2%.”