Exploring My Decision to Start an Investment Advisor Firm

Never did I think that having an endless workload would be fun. Even as I type this (my task list not getting the least bit smaller and my email inbox still expanding) my excitement for my switch to an investment advisory platform is still at a high. The transition to a Registered Investment Advisor firm has forced me to wear many hats, but with each figurative brick I lay for the foundation of the fledgling firm, I discover a new reason why my decision was clearly the right choice.

There are some of you on this listserv that I still owe a phone conversation to finalize details, and for some people on the listserv this is completely new news. So let me explain (or remind you of) the 'whats' and 'whys' of my decision to move from a Broker Dealer platform to starting my own firm on a Investment Advisor platform.

For the past several years, if not decades, there has been a slow change in the relationship that financial professionals have had with clients. In the days before the unlimited availability of information, the bulk of the services that Financial Advisors provided was on educating clients on the types and uses of different investment products. Clients would purchase different products from their advisors and pay a commission. Fairly recently a very important question has crept into the conversation that clients have asked their advisors, 'Are you a fiduciary?'. Translation; 'Do you put your clients' needs before you own?'. 'Your own' in this instance is 'your paycheck'. The dilemma is is that different types of investments and investment products carry different fee structures and expenses. Some products have fee structures that are layered and can be very complex. If two products can offer a similar benefits to a client, it's human nature for a commission driven advisor to favor the one that comes with a higher commission. And for the less ethical advisor, the client benefit loses its importance.

Enter the concept of paying for advice. As the information age has seemingly made everyone an expert on everything, Financial Planning has evolved into helping clients with their financial behavior more than financial products. There is a far greater need to educate clients on the importance of making sound financial decisions than to simply know where to put your money. A legitimate Financial Planner focuses more on making sure a client is financially self aware and educated than on what products they should be using. There is nothing wrong with the majority of financial products available to investors today, but their use should be dependent on need and not payout.

So, what is the easiest way to make sure an advisor is doing what is in the best interest of the client? The answer is quite simple, and quite obvious at this point...pay for advice, not products. Work on a platform where clients pay a transparent fee for advice, which does not vary based on the recommendations from one client to another. Advisors need to work in a capacity where they act as an advisor, not a broker.

I have run my practice on this philosophy for the majority of time that I have been licensed. But I could not define myself as a true fiduciary, since I was always registered as a broker in addition to an investment advisor representative. As a licensed broker I still had access to a platform where I could earn commissions on product sales. And I was paying a broker dealer a cut of my income to pay for a service I was not really using. So, to be true to my desire to be a client focused, advice driven, financial planner, I made the decision to shed my brokerage license and broker dealer relationship to remove all question as to whether or not I was a true fiduciary.

It was something I have wanted to do for some time, but lacked the resources (e.g. the capital) or knowledge to attempt the risky jump to start completely on my own. After exhaustive research, planning and preparation, the decision became easier and easier to make. And I should also thank those of you reading this whom I consulted and who showed as much enthusiasm as I did to make the jump.

So far so good. The transition has been relatively smooth, despite some annoying and some comical bumps in the road. Neither the firm or my brain is functioning at full power right now, but I can already see the benefits of making the decision and it will be full speed ahead soon enough. I'm excited to have all of you benefiting form the decision as well.

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