Sizing Up the Different Kinds of “Retirement Advisors”

Key Takeaways:

• Financial advisors and financial advisers are not the same thing—don’t overlook the spelling difference
• Some firms don’t necessarily align their fee structure with your best interest
• Understanding how your financial professional is compensated can be an important consideration when evaluating what financial service to use

Financial help can be found under many different titles. There are financial advisors, retirement advisors, Registered Investment Advisers (RIAs), brokers, and more. How can you best choose one individual or firm to help you with your retirement plans and goals? Understanding some major differences can be a good first step when evaluating who would be best for designing and implementing your retirement plan.

Investment Adviser (with an “e”) versus Advisor (with an “o”)

One way to distinguish financial professionals is through spelling. Despite being separated by only one letter, these titles can imply vastly different responsibilities and legally obligated standards.

Within the financial services industry, Adviser with an “e” is an official designation denoting a Registered Investment Adviser (RIA). An RIA’s primary business is providing investment advice and plans. These professionals generally don’t earn commissions or have incentives to sell products. They typically charge fees based on assets under management.

An RIA must register with the Securities and Exchange Commission (SEC). They are bound by a fiduciary standard which means they are accountable for acting in their clients’ best interests at all times. RIAs are also required to provide a Form ADV that details any potential conflict of interest and a history of their business dealings.

Advisor with an “o” can indicate various financial professionals who provide portfolio or investment planning services. Most often, within the financial services industry, this term refers to a representative of a broker-dealer.

These representatives, who may call themselves Investment, Financial or Retirement Advisors, generally serve two main functions—to buy and sell securities on behalf of their customers (as the broker), and to do the same for their firm’s own accounts (as dealer). Sometimes they do both. Some may charge an ongoing fee, and also earn commissions from client trades.

These advisors are not generally required to always put their clients’ interest above their own; instead they are merely required to recommend investments that are “suitable” for their clients. This means that if there are two “suitable” investments for a client, an advisor could potentially recommend the more expensive (and potentially higher commission) product.

While nothing is inherently wrong with the “investment advisor” (with an “o”) or “retirement advisor” titles, these professionals generally operate by different standards than RIAs.

Evaluating Financial Professionals for Your Retirement

Remember that a behavioral standard on its own can’t guarantee you’ll receive advice in line with your best interests. Even if you are working with an individual or firm held to the fiduciary standard by its regulators, it is ultimately up to you to do your research and find one that deserves your trust.

The Financial Industry Regulatory Authority (FINRA) keeps an extensive list of popular titles that may help decipher what a professional actually does.^[i] Professionals with various certifications or job titles may not be subject to the same rules as broker-dealers or RIAs. Finally, when considering which retirement professional is appropriate for you, make sure to thoroughly read all the disclosure information they provide.

How Financial Advisors Are Compensated

Financial firms can be compensated in a variety of ways. Just some of the ways include charging hourly, basing fees on assets under management, basing fees on performance, charging based on asset class, earning commissions on trades or by selling certain types of products. Remember, compensation structures that don’t align with your interests could potentially jeopardize your retirement goals.

Brokerage Firms

• Commissions: In a traditional brokerage relationship, clients often pay money manager fees for each purchase or sale of a stock. The broker may have an incentive to trade more so they can earn trading commissions.
• Mutual Fund Sales Loads: The up-front or deferred sales charges for mutual funds can vary widely but aren’t permitted to exceed 8.5%^[ii]. These funds can also carry 12b-1 fees, which are fees charged to fund shareholders to cover marketing costs, distribution costs, and sometimes shareholder services, management expenses and underlying transaction costs.
• Annuity Sales: For variable annuities, fees like Mortality and Expense charges, benefit rider costs, subaccount costs, surrender charges and more may apply.
• Revenue Sharing: Brokerages can receive compensation for selling certain mutual funds and other securities.
• Fee-Based Products: Broker-dealers can offer annual percentage fee-based products that outsource much of the investment process to third-party firms. Some ongoing expenses like management expenses could still apply.
• Account Fees: Broker-dealers often charge nominal fees for account maintenance.

Fisher Investments

• Fee-Only Advisory: We understand the issues fees raise and offer a simple and transparent, tiered, competitive fee based on the value of the assets we manage for you.^* It is easy to understand, and it puts your interests first.

If you’re interested in learning more about our services or the benefits of choosing Fisher Investments as your adviser, you can request a meeting with one of our experts. We also encourage you to download any of our helpful retirement and investing guides to assist you in understanding the process we use to create personalized retirement plans to help you on the path to your long-term goals.

*Fisher Investments’ (FI) clients will incur fees in addition to the management fee paid to FI, as stated above. Such fees can include brokerage commissions, other custodian fees and expenses for investing in exchange-traded funds. FI does not earn such fees.

^[i] https://www.finra.org/investors/professional-designations

^[ii] https://www.sec.gov/fast-answers/answersmffeeshtm.html