who to trust with money

Who should I trust with my money? Differences between Brokers, Registered Investment Advisors (RIA), and going it alone.

Having been in the financial industry for years and specifically helping people with their taxes and tax planning I get all sorts of questions regarding what people should do with their money, where should they be saving it, who should they trust with it. Everyone’s situation is different and so while there are some basic tenants to follow every taxpayer and investor should probably seek out some sort of professional help.

The problem is that not all professionals are equal. Would it scare you to know that many of the professionals out there can legally put their interest in front of yours in how your money is used as long as they are recommending something that is considered “suitable?” I know when I go to someone for advice I am expecting that the advice they give me will be the very best advice for my situation. When it comes to money and investing for the future this becomes even more important. bad-financial-advisorThat is why I would always recommend that people seek out someone who has a fiduciary responsibility to them. Basically an adviser who has a fiduciary standard is required to put the client’s interests before their own interests. But the average consumer who is working long hours and doesn’t have the time to study up on the laws and differences in the types of financial advisers trusts that the government has already protected them to some extent and that can be a fatal mistake.

I have clients who come to me and proudly show how many transactions their broker made for them over the past year. What they don’t understand is that the broker only has to put them in suitable funds and plans and does not have to put the client’s interest as top priority. (There are many good brokers out there that do truly try to help their clients; I am just saying the potential for conflict of interest is much higher). The broker generally makes most of their money through the transaction regardless of whether the transactions made or lost money for the client the broker still makes money.

Side note on broker transactions: When I see lots of transactions in a client’s portfolio, I’m not generally impressed. In many cases the tax preparer will then charge around $5 per transaction to enter these transactions onto the client tax return which effectively reduces the person’s gain just from the tax preparation costs added in. Think 100 transactions time $5 is a $500 investment loss.

Some people have the idea that they will do all of their own investing planning. There are a few who do pretty well on their own, but they really are rare. In most cases the tools and learning that they are using are put out there by the big brokerage firms guiding the people to purchase the same limited number of stocks and portfolios. (In essence they still used a broker just unknowingly). In most cases these people choose to “go it alone” because they believe the myth that getting financial advice is expensive and is only available to the wealthy. But this is not true and everyone should take the time to get sound financial advice.

The good news is that there are professionals who must  have the clients’ best interest at heart and who are not paid by the financial advisetransactions that the client makes. These people are Registered Investment Advisors or RIAs. RIAs operate independently and are not tied to a specific company or bank or brokerage firm. This allows them to put your interest first and find the best fit for your situation and your goals and dreams. In most cases you will be able to get on a plan to secure your financial future at minimal cost or sometimes no cost to you. And, if you do incur costs from an RIA those costs can be tax deductible, so it can really be minimal to you. And the knowledge that you have a plan of action and a professional who has your best interest at heart will bring peace of mind.

Note: If you want to be connected with my personal RIA I can give you recommendations, just reach out to me below. Also, at the time of the writing of this article I am studying to become an RIA as I believe it is in the best interest of many of my current tax clients

P.S. If you enjoy this post, please do me a favor and share with others, retweet and comment.