Wealth Planners is a fee-only Registered Investment Advisor. The following information will help to explain the differences between Wealth Planners and other types of professionals in the investment area.
Cutting through the Confusion - Where to Turn for Help with Your Investments
There are many reasons you might want help with your
investments. Perhaps you want to start a college fund
for your child. Maybe you are concerned that you are
not doing enough to save for retirement. Or maybe you
simply feel the need to get your financial house in order.
While some people are comfortable handling their own
investments, many are not. They find the idea of creating
a plan for allocating their assets bewildering, choosing
a mutual fund intimidating, and designing an investment
portfolio to be one more thing for which they
have neither the time nor the expertise.
This is nothing to be embarrassed about. Investing can
be confusing. The good news is there are thousands of
people in the financial services industry who can help
with financial and investment decisions. Unfortunately,
finding the right investment services provider may seem
almost as confusing, intimidating, and time-consuming
as choosing the right investments.
This brochure was developed by the Coalition for
Investor Education to help you cut through the confusion.
It covers those financial services providers - investment
advisers, brokers, and financial planners - who provide
assistance with securities investments (such as
stocks, bonds, and mutual funds) as part of their services.
Our goal is to provide some basic information you
can use to find an investment services provider who is
right for you - one who offers the services you want on
terms you understand and accept.
Who We Are: The Coalition for Investor Education is
made up of state securities regulators, consumer advocates,
and representatives of the investment adviser and
financial planning community. See the back panel of this
brochure for a complete listing of our members.
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What Types of Providers Offer Assistance With Investments?
Investment services providers fall into three categories:
- Investment advisers
- Brokers
- Financial planners
Investment Advisers. The term investment adviser is a
legal term that describes a broad range of people who
are in the business of giving advice about securities (the
term "securities" includes stocks, bonds, mutual funds,
and annuities). They may use a variety of titles in addition
to investment adviser, such as investment manager,
investment counsel, asset manager, wealth manager, or
portfolio manager. Investment advisers provide ongoing
management of investments based on the client's objectives,
typically with the client giving the adviser authority
to make investment decisions without having to get
prior approval from the client for each transaction
(called discretionary authority).
Brokers. The terms broker and broker-dealer are legal
terms that refer to people who are in the business of
buying and selling securities (called trading) on behalf of
customers. Individual salespeople employed by brokerage
firms are often called stockbrokers and are officially
referred to as registered representatives of the brokerage
firm. But these individuals also use many other unofficial
titles. These include financial consultant, financial
adviser, and investment consultant. In recent years, brokerage
firms have increasingly offered a broader range
of investment planning services in addition to buying
and selling securities.
Financial Planners. Unlike the terms investment adviser
and broker, financial planner is not a legally defined term.
However, it generally refers to providers who develop
and may also implement comprehensive financial plans
for customers based on their long-term goals. A comprehensive
financial plan typically covers such topics as
estate planning, tax planning, insurance needs, and
debt management, in addition to more investment-oriented
areas, such as retirement and college planning.
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What Services Do You Want?
The search for the right investment services provider
starts with the answer to a seemingly simple question
what services are you looking for? Investment services
fall into three broad categories:
- Assistance with buying and selling securities
- Ongoing management of investments
- Financial planning
These services are related. Some firms offer all three
under one roof, while others specialize in just one or
two.
So how do you know what is right for you?
You may want an investment adviser to provide ongoing
oversight and management of your portfolio of
securities. You may simply want a broker to help you
with the mechanics of buying and selling securities. Or
you may want a financial planner to look at your entire
financial picture - including insurance, taxes, estate
planning, as well as investments - and come up with a
long-term, comprehensive financial plan.
Defining what services you want will help you decide
which investment services provider is right for you.
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How Do You Want To Pay for Those Services?
Another factor that may affect your choice of investment
services provider is how you prefer to pay for services.
Your options fall into three basic categories:
- Percentage of assets under management
- Commissions
- Fees
Providers may rely on only one compensation method,
combine the different compensation methods within an
account, or offer different compensation options to different
clients.
Percentage of assets under management. Some investment
services providers, including most investment
advisers, charge a fee based on a percentage of the
assets in the client's account. The percentages charged
can vary significantly from provider to provider. Also,
providers typically charge larger accounts based on
lower percentage rates.
Commissions. Some providers, including many brokers,
receive their compensation based on commissions
clients pay each time they buy or sell a security. This can
be an affordable option for those who expect to trade
only rarely, but it may expose clients to potential conflicts
of interest, such as creating an incentive to recommend
frequent trades or particular investment products.
Fees. Some providers, including many financial planners,
charge fees for their services which clients pay directly to
the provider. They may be hourly fees or a flat fee or
retainer fee for a particular service or range of services.
They may also include a performance fee based on how
well the client's account performs.
Ultimately, you should determine which method of compensation
offers you the lowest total costs and which
method best aligns your interests with those of your
investment services provider.
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What are the Differences in Providers' Legal Obligations?
Investment services providers not only offer different
types of services and charge for them differently, they
also are subject to different federal and state regulatory
requirements and have different legal obligations to their
customers. Important distinctions - including whether
the provider has a clear obligation to act in your best
interests or disclose conflicts of interest - depend on
which legal category the provider falls into under our
securities laws.
Securities laws recognize two types of providers - investment
advisers, who are in the business of giving advice
about securities, and brokers, who are in the business of
buying and selling securities on behalf of customers.
Investment advisers are subject to a fiduciary duty. That
means they have to put your interests ahead of theirs at
all times by providing advice and recommending investments
that they view as being the best for you.
Investment advisers also are required to provide up-front
disclosures about their qualifications, what services they
provide, how they are compensated, possible conflicts of
interest, and whether they have any record of disciplinary
actions against them. They are regulated directly by
either the U.S. Securities and Exchange Commission (SEC)
or by state securities regulators, depending on the amount of assets they have under management. You can
find out whether a person or firm is registered or licensed
as an investment adviser by calling your state securities
regulator using the contact information on the NASAA
website: www.nasaa.org or by visiting:
www.adviserinfo.sec.gov.
Brokers are generally not considered to have a fiduciary
duty to customers, although this standard may apply in
certain limited circumstances. Instead, brokers are
required: 1) to know your financial situation well enough
to understand your financial needs, and 2) to recommend
investments that are suitable for you based on that
knowledge. They are not required to provide up-front disclosure
of the type provided by investment advisers. In
addition to being regulated directly by the SEC and by
state securities regulators, brokers are subject to regulation
by industry self-regulatory organizations, including
NASD and the New York Stock Exchange. You can find
out whether a person or firm is registered or licensed as
a broker and check out their disciplinary record by calling
your state securities regulator using the contact information
on the NASAA website: www.nasaa.org or by visiting
http://pdpi.nasdr.com/PDPI/.
Financial planners are not separately regulated as planners.
Instead, their regulation and the level of responsibility
they owe customers depends on the type of services
they provide. Planners who provide investment advice
must be registered or licensed as investment advisers and
are subject to a fiduciary duty. Those who trade securities
must be registered or licensed representatives of brokers.
Some financial planners perform other activities that do
not involve securities and therefore are not regulated
under laws governing either investment advisers or
brokers.
The legal situation is further complicated by the fact that
different standards can apply when investment providers
serve as both investment advisers and brokers. For example,
investment advisers who also buy and sell securities
for customers must meet the requirements applicable to
both investment advisers and brokers. The same is not
true of brokers. They are permitted to offer investment
advice in connection with their brokerage services without
being regulated as investment advisers. As a result,
the advice they offer is subject to the suitability standard
that governs brokerage activities rather than the higher
fiduciary duty that applies to investment advisers.
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Investor Checklist
The key to finding the right investment services provider
is asking the right questions . both of yourself and of
prospective providers. Following are some questions that
should help you identify the right provider for you.
Remember, there are no foolish questions. Any reputable
provider should be happy to discuss these issues with
you and answer any questions you may have.
Questions to Ask Yourself Before You Invest
- Do you need help developing strategies to reach your
financial goals or do you simply want suggestions on
appropriate investment products to implement your
goals?
- Do you want assistance with a few targeted areas, or do
you need a comprehensive plan for your finances?
- Do you already have a portfolio of investments you
would like help managing?
- How involved do you want to be in decisions about your
specific investments?
- Do you prefer paying for investment services through a
fee, commissions, a percentage of assets in your account,
or a combination of these?
- Do you prefer working with someone who is primarily
considered a salesperson, an adviser, or a combination
of the two?
- How important is it to you that your provider have a
legal obligation to act in your best interests and disclose
potential conflicts of interest?
Questions to Ask Your Investment Services Provider
- What services do you offer?
- What qualifications do you have to offer those services?
- How do you charge for those services? Do you receive
compensation from other sources if you recommend that
I buy a particular stock, mutual fund, or bond?
- Would my account be an advisory account or a
brokerage account?
- Are you required by law to always act in my best
interests? Will you put that commitment in writing?
- What potential conflicts of interest do you have when
recommending investment products to me, and will you
disclose those conflicts?
- Will you provide me with a written record of any
disciplinary history for you and your firm?
- Will you give me your Form ADV (the registration form
that must be filed by investment advisers) and/or
your Form U4 (the registration form used by persons
who work with brokers)?
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Coalition on Investor Education
The Coalition on Investor Education is made up of consumer
advocates, state securities regulators, and representatives
of the investment adviser and financial planning
community, including:
Consumer Federation of America is a non-profit association
of approximately 300 national, state, and local pro-consumer
organizations. It was founded in 1968 to advance the
consumer interest through research, education, and advocacy.
www.consumerfed.org
Organized in 1919, the North American Securities
Administrators Association is the oldest international organization
devoted to investor protection. NASAA members include
state, provincial, and territorial securities administrators in the
United States, Canada, and Mexico. www.nasaa.org
The Investment Adviser Association is a non-profit organization
that represents federally registered investment advisory firms.
Founded in 1937, the IAA's membership consists of more than
400 companies that provide investment advice to a wide variety
of individual and institutional clients. www.investmentadviser.org
The Financial Planning Association is the membership organization
for the financial planning community. Its 28,500 members
are dedicated to supporting the financial planning process in
order to help people achieve their goals and dreams.
www.fpanet.org
A global membership organization that awards the CFA designation,
CFA Institute leads the investment industry by setting the
highest standards of ethics and professional excellence and vigorously
advocating fair and transparent capital markets.
www.cfainstitute.org
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