Financial Advice

What You Need to Know About Financial Advice

Why use a Registered Investment Advisor (RIAs)?
Registered Investment Advisors (RIAs) in the United States, such as Freeman Capital Management LLC, are governed by US  Securities laws  and are held to a higher standard known as a fiduciary.

What is a fiduciary?
RIA’s are held to a higher standard than stockbrokers or unregulated advisors when it comes to putting investors interest first and doing the right thing for their clients’ investments. Independent RIAs have a fiduciary duty to their clients, which means they must:

  • Act in the best interest of their client. This means the advisor must hold the client’s interest above its own in all matters.
  • Disclose all information relating to the relationship between an advisor and a client.
  • Have policies regarding affiliated broker-dealers and maintenance of brokerage accounts
  • Disclose all conflicts of interest
  • Abide by a code of ethics

How are Investment Advisors (Freeman Capital Management) different from stockbrokers / unregulated advisors?

  • Investment advisors have a fiduciary duty to act in the best interest of their clients at all times. Brokerage firms generally are not fiduciaries to their customers and therefore may make decisions that are not in their customer’s best interests.
  • Investment advisors provide their clients with a Form ADV that describes exactly how the investment advisor does business and obtains the client’s consent to any conflicts of interest that might exist with the investment advisor’s business. Brokerage firms are not required to provide customers with any comparable type of disclosure.
  • Investment advisors charge clients a fee negotiated in advance and cannot earn other profits from their clients without the clients’ prior consent. Most investment advisors are paid an asset-based fee, so their interests are aligned with their clients. Brokerage firms’ revenues may increase even if the customers’ assets shrink.
  • Investment advisors manage money in the best interests of their clients. They do not engage in business activities like investment banking or underwriting, which brokerage firms do. These other services may cause a brokerage firm’s interest or attention to focus on other areas of the firm outside of their retail brokerage business or customers.

RIAs are allowed to charge an advisory fee, but cannot accept any hidden commissions or revenue sharing payments from third parties. Traditional stockbrokers or unregulated advisors are not required to act in their investor’s best interest or to disclose all sources of compensation. They generally are paid through upfront and deferred sales commissions, cash incentives linked to the sale of specific “products”, and ongoing revenue sharing payments from the investments their clients hold.

What to avoid:

  • Avoid investment advice from advisors such as stock brokers, insurance agents who are paid commissions though the products they are selling.
  • Avoid insurance types of contracts that lock your assets in for many years. Often products have large (5-9%) redemption fees if you want to move your money elsewhere before the contract is over. Avoid this at all costs.
  • Avoid products where the salesman gets an immediate front load or commission.
  • If an advisor is not required by law to disclose the above important considerations they often skip over the fine details.

Why use a fee only investment advisor?
Fee-only advisors are paid exclusively by their clients. By not taking commissions or kickbacks from fund or insurance companies, conflicts of interest are eliminated.

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