Why We’re Different
There are many differences between firms and also between advisors. For example, the business model of a large firm differs greatly from that of an independent broker or a Registered Investment Advisor.
In addition, though consumers find it very difficult to differentiate between individual advisors, a broker differs greatly from a Registered Investment Advisor. Brokers are held to a suitability standard while Registered Investment Advisors are held to a much higher fiduciary standard. Integrity Wealth Management, Inc. is a Registered Investment Advisory firm.
The following information is intended to contrast, in plain and simple language, the differences between these types of entities and advisors.
Issue: Personal Service and Capacity
Problem: Advisors in large brokerage firms and banks are under pressure to continue adding to their client base. At some point, the number of clients becomes too large and they are no longer able to provide a high level of service.
Our Approach: We’ve made a conscious decision to work with a smaller number of affluent and wealthy clients. This assures that we can provide a high level of personalized service to each client.
Problem: In large publically traded brokerage firms and banks, a conflict exists between the client, the company, its advisors and its shareholders. Shareholders expect reasonable stock performance which is driven by profitability. Therefore, upper management, in an effort to satisfy shareholders, will place production requirements on middle management. Middle management passes this directive down to the advisors who are ultimately responsible for producing the revenue. The result is a culture of sales rather than advice. When production of revenue becomes the main focus, the interest of the client become secondary to the interests of the company and “product pushing” often results.
Our Approach: At IWM, we believe revenue is a byproduct of quality service. We also believe that when the client is served well, they will tell others about us. Therefore, our focus (and legal obligation) is on putting the interests of our clients first. This conflict of interest is thus eliminated.
Issue: Proprietary Products
Problem: Companies who have their own brand of products experience a greater profit from the sale of these products. It’s typical for clients working with these types of firms to have an excessive amount of proprietary mutual funds in their accounts.
Our Approach: As an independent RIA firm we have no proprietary products.
Problem: In the financial services industry, it is common practice for mutual fund wholesalers to offer inducements to advisors to sell their products. These inducements may be in the form of a meal, a gift or even trips to exotic locations. Although perfectly legal, it is a serious conflict of interest which can impede the advisors objectivity.
Our Approach: We will not accept any inducements from any company.
Problem: In large brokerage firms, it has been common practice for years, to pay large upfront cash payments to advisors to jump ship and join their firm. The new firm will also require that the advisor sign a contract, which locks them in for a number of years. This arrangement also carries with it an expectation that the advisor will produce a significant amount of revenue to offset the bonus paid to them by the new firm. Even though this is legal, it encourages a culture of sales and product pushing as the advisor attempts to maintain a high level of production.
Our Approach: We have no such program.
Problem: In many firms, client’s personal information is commonly shared during sales meetings and with other departments.
In sales meetings, confidential information is frequently heard by those in attendance, even though they may not be directly involved with the client.
Sharing client information with other departments is most common in banks and is referred to as cross selling. An example of cross selling would be a bank loan officer sharing client data with an investment rep who would then look for ways to generate revenue.
Our Approach: We are legally obligated to hold our clients information in the strictest of confidence. We will only share client information if required by law or given written permission by the client.
Problem: Because of the inherent focus on revenue, advisors in large brokerage firms and banks are expected to generate a certain amount of revenue for their employer. This pressure to produce, results in a focus on sales rather than on advice.
Our Approach: As an independent advisory firm, we have no production quotas.
Problem: Advisors who are paid by commissions often experience a strong temptation to sell products to generate income. Sometimes, when an advisor is having a down month, they may be more inclined to try and sell products to generate a commission. This creates a conflict between their need for income and the clients need for fair, objective advice.
Our Approach: We are fee only and do not receive commissions for investment recommendations. Moreover, since our fee is directly tied to the value of the account, our fee will increase when the account rises and decrease if the account falls in value.
Issue: Legal Standard – Brokers versus Registered Investment Advisors
Brokers are subject to FINRA Conduct Rule 2310(a) which reads:
“In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his security holdings and as to his financial situation and needs.”
Registered Investment Advisors
are subject to a fiduciary standard which may be defined as:
A fiduciary duty is an obligation to act in the best interest of another party. A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence and reliance on the fiduciary to exercise his discretion or expertise in acting for a client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.
The difference is clear. Choosing a Registered Investment Advisor will increase the probability of finding someone who will place your interests first...it is a legal requirement!