Written by: Adrienne Martin
We have written about the difference between working with a fee-only Registered Investment Advisor (RIA) and working with other types of financial advisors in the past — and we are writing about this distinction again — because we think it is important that clients and potential clients understand what separates Agili from others.
Retirement Planning – Historical Changes
Over the past four decades, as pensions have diminished and the responsibility of saving for retirement has moved from employers to employees, financial consumers have grown increasingly dependent upon the advice of their investment advisors. Therefore, it is critical that consumers understand what distinguishes one advisor type from another.
RIAs Are Held to Stricter Ethical Standard than Brokers
When Michael Joyce established our firm over 30 years ago, he did so as a fee-only RIA because he wanted the firm to be held to the highest ethical standard. A key differentiating factor between RIAs and brokers is the ethical standard to which each is held; the fiduciary standard vs suitability standard. When advising clients as an RIA, we at Agili are legally bound to follow the SEC registered investment advisor requirements to adhere to the fiduciary standard. The fiduciary standard requires us as an RIA to make investment recommendations that are in the best interest of our clients. In the finance industry, there is no higher bar. Broker-dealers, on the other hand, are required to meet a lower bar following only the suitability standard; meaning brokers make recommendations that are suitable for clients, but not necessarily in their best interest.
Agili Is a Pioneer of the Fee-Only RIA Model
Agili is not only an RIA held to the strict fiduciary standard, but since our firm’s inception more than 25 years ago, we’ve chosen to be a fee-only RIA. We are proud to have been pioneers of this model. What “fee-only” means is that the only way we make money is through the agreed upon fees our clients pay us. We never receive fees from those selling financial products.
How Brokers and Other Advisors Are Compensated – And the Potential for Conflicts of Interest
Broker-dealers are not only held to the lower bar of the suitability standard, but they also receive commissions on the products they recommend. And certain RIAs who do not operate as “fee-only” may also receive such commissions. While most financial advisors are reputable, receiving commissions on the products one recommends can lead to conflicts of interest. Some potential conflicts of interest of the commission model of advisor compensation are:
- A commissioned advisor may be tempted to make recommendations that pay higher commissions when a less expensive and/or more profitable alternative is available.
- A commissioned advisor might be motivated to recommend that a client convert noncash assets, such as real estate and collectibles, to cash that can be reinvested so that the advisor can collect commissions.
- A commissioned advisor might be tempted to advise a client to make investments so that the advisor can collect a commission when holding cash may be more beneficial.
- A commissioned advisor may unnecessarily buy and sell securities (known as “churning”) to generate commissions.
- A commissioned advisor may offer plan participants a mutual fund share class that is not the lowest cost share class, thus causing plan participants to pay more than necessary.
Agili Has Never Made Money from Recommending Financial Products
At Agili, we know that advising with as few potential conflicts of interest as possible is the best way to serve our clients. To reiterate, we have always been a fee-only RIA and have never and will never receive revenue from commissions on products. Over the years, we have seen first-hand how this model benefits the retirement savings of our clients. At our core, this is who we are.
Nerdwallet delineates 3 Reasons to Hire a Fee-Only Financial Planner here.
Agili’s disclosure document, Form ADV, is on file with the SEC here.