Newsletter: Special Edition – Understanding the Difference Between a Broker and a Registered Investment Advisor

In March 2018, the United States Court of Appeals for the Fifth Circuit added to the lingering saga of the DOL Fiduciary Rule by voting to vacate the rule. As a result, the debate over who is and who is not a fiduciary continues. The lack of clarity on this subject was one of the main reasons we decided to form our own Registered Investment Advisor (RIA) and leave the confusion behind. So, what’s the difference between a broker and an advisor?

A critical distinction between the two is regulatory. A broker is registered with the Financial Industry Regulatory Authority (FINRA) and owes a duty of fair dealing to their clients. They are only required to make recommendations that are suitable for clients and can legally put their interests above the clients’. On the other hand, an RIA is registered with the Securities Exchange Commission (SEC). As a fiduciary, an investment advisor has an affirmative duty of care, loyalty, honesty and good faith to act in the best interests of clients.

Compensation is also typically different between the two. By definition, a broker is someone who buys and sells products on behalf of another for a commission. This compensation can be a natural conflict of interest. Advisors, on the other hand, provide advice for a fee and generally provide a more comprehensive array of services, including financial planning, estate planning, tax guidance, etc.

Another difference is transparency. The standard for the brokerage industry is disclosure, which means a lot of voluminous documents, often creating greater confusion. The RIA world is about clarity. Advisors adhere to the highest standard of transparency, sharing details about their services, fees and even the makeup of their firm. This information is required to be provided to clients and is published on the SEC website.

While there are clear differences between a broker and an advisor, good and bad individuals can be found in both categories. Although we have always held ourselves to the fiduciary standard and tried our best to be transparent in our dealings, the time was right to make it clear where we stand. We are committed to the highest standards of care and will do our best to validate this newest change.

This article was originally featured in NNP’s Special Edition newsletter. To read the other articles, download the entire newsletter.

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Newsletter: Special Edition – Setting the Course for the Future

Welcome to our first newsletter as a Registered Investment Advisor (RIA). After a long due diligence period and a lot of hard work, we now enter the stage of completing the transition process with the ultimate goal of delivering a better client experience.

Without a doubt, this conversion is the largest project we at Nachman Norwood & Parrott Wealth Management Consultancy (NNP) have ever embarked upon. It has been, and will continue to be, a huge commitment on behalf of our team. At times, it causes us to step back and revisit the why. Business has been good, and we have plenty to do to keep us busy. We could have coasted; however, we have always believed that in an evolving world we need to continue to move forward to fulfill our mission of delivering top-tier service and advice, especially in a world of greater transparency and rapidly changing technology. So, what’s in it for NNP, and most importantly, for our clients?

1. We have separated ourselves from much of the confusion within the industry. As a result of this transition, we can now clearly state we are a fiduciary on our entire business.

2. We are utilizing a deeper suite of tools and technology that includes:

  • A more robust financial planning capability as we partner with industry leader, Money Guide Pro®.
  • Enhanced performance reporting via Black Diamond.
  • Account aggregation software that allows us and our clients to track their full net worth, including assets outside NNP.
  • A client portal that provides greater online abilities for our clients, including a vault to help us and our clients securely store and share important documents and reports.
  • A mobile app with notification capability.
  • More flexibility to communicate with clients
  • Greater remote capabilities.

3. We will now have an increased ability to adapt to change at a more rapid pace. If we find a better way, we can take advantage of the opportunity quickly rather than wait for a large institution to react.

4. We have partnered with the largest RIA custodian, Charles Schwab.*

 
Although this sounds like a lot of change, some things will remain the same. We will do our best to continue to evolve our business rather than accept the status quo. Technology is changing the business world, and while we will use these tools, we remain committed to personal service and attention. We recognize that the relationships we have built between our team and our clients have been the foundation of our success. We pledge to work even harder to grow these relationships for years to come. One of the true benefits of the last several months has been the opportunity to visit with most of our clients and their families. This process has helped remind us of the friendships we have made, how long we have worked with many of our clients and their loyalty to NNP. We cannot thank you enough for your confidence and patience.

This article was originally featured in NNP’s Special Edition newsletter. To read the other articles, download the entire newsletter.

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*https://events.wealthmanagement.com/charles-schwab/