The Power of Working with a Registered Investment Advisor
You’ll see it all over our website: Generation Capital Management is what’s called a Registered Investment Advisor. What does that mean and why does it matter? Well, that’s a great question. And there are three primary differentiators that revolve almost exclusively around you as our client.
1. We cannot charge our clients commissions
Did you know that different financial products offer different commissions? A financial advisor would make a different commission if they sold you a stock versus if they sold you a bond or mutual fund. The commissions are even higher for more complex products such as life insurance or annuities. In the end, commissions create a conflict of interest and may encourage advisors to recommend the product that offers the financial advisor a higher commission.
Registered Investment Advisors cannot charge commissions, so here at Generation Capital Management we avoid this conflict of interest all together. There are only two ways our clients can pay us: a percentage of the assets that we invest for them or a flat, transparent fee for the service that we offer. This lets us be more objective and goes hand-in-hand with the next great reason to work with an RIA…
2. We have a fiduciary responsibility to our clients
Did you know that only Registered Investment Advisors are required by law to act in a client’s best interest at all times? That means every recommendation that we make here at Generation Capital Management has to be the recommendation that we believe will lead to the best outcome based on the information we’ve been provided without regard for how those recommendations will compensate us. If you can even believe it, financial advisors at insurance companies, banks, and other institutions that are not Registered Investment Advisors do not have this level of responsibility to their clients.
Without the fiduciary standard, financial advisors are only held to a “suitability” standard. This means they need to make recommendations that make sense for the client, but do not necessarily need to be the least expensive or best option for the client. It’s a subtle but important distinction.
When asked if they are a fiduciary, these advisors will sometimes skirt the issue. They might say they act like a fiduciary, or they may talk about how they sometimes act as a fiduciary in a retirement plan. I’ve heard both of these tactics used to distract clients from the fact that the advisor does not have a binding fiduciary responsibility to that client.
Now, this is not to villainize advisors who are not fiduciaries—in fact there are some great financial advisors who have the highest integrity in their work but do not have a fiduciary responsibility to their clients. But Registered Investment Advisors have aligned themselves with the fiduciary standard in an effort to make clear to the client that they have the client’s best interests in mind at all times!
3. We are entirely independent
Finally, most Registered Investment Advisors are wholly independent. Here at Generation Capital Management, we are no exception. What does it mean to be independent?
Well, it means that we do not answer to a larger entity. We do not rely on the rules passed down by some multi-billion dollar conglomerate or a bank whose sole interest is the bottom line and pleasing shareholders. We can be nimble and adaptable making policies that help us to better serve our clients—and we can decide what we say and how we say it to you.
To be concise, the buck stops with us. When you talk to Scott about your portfolio, you’re talking to the person who constructed that portfolio. Speaking with me as your financial planner means that you’re having a conversation that doesn’t have to go through a committee to figure out what your best course of action is. We don’t have middle-people; we don’t have bloated overhead costs that we pass on to you.
If you haven’t already, be sure to check out our free guide How to Hire a Financial Advisor for some important considerations you should make if you think you might like to work with a financial advisor. Whether you’re already working with an advisor or looking to work with one for the first time, our guide provides useful information to help you decide which team is the right fit. You should also feel free to reach out to me if you have any questions or want to know more about the work that we do. My email address is jhowe@gencapmgmt.com.
