There are some important differences you need to be aware of when selecting whom you will trust with some of the most intimate details of your life. Protect yourself and your family’s financial wellbeing by learning the advantages of a proper fiduciary advisor and choosing Denarius Wealth Management.
In light of news about fraud, Ponzi schemes, and lack of regulatory oversight, we want to make crystal clear how Denarius Wealth Management, an independent Registered Investment Advisor (RIA), is legally required to serve our clients. What are the differences between our responsibilities as a Registered Investment Advisor (“Advisor”), and those of a Registered Representative, one usually employed by a broker-dealer (i.e., a “broker” or “stock broker”)?
The legal standards by which each type of provider is measured against are quite different. There are subtle, but important differences between an Advisor’s and a Broker’s legal responsibility to clients. We believe it is important for you to understand these differences. Why is the distinction important? The differing levels of legal responsibility have a direct bearing on what investments are recommended for your account(s) and how your portfolio is constructed.
Below are a brief summary of important differences. Click to expand each section for more information.
Fiduciary vs. Suitability
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As a Registered Investment Advisor under the Securities Act of 1940, we are required to act as a fiduciary. We must put your interests above our own and declare any conflicts of interest that may arise. You can be assured the portfolios we construct to meet your goals put your interests above all else. Our only thought when selecting investment products for your portfolio is how those investments are going to help you get to your financial objectives.
A broker, or Registered Representative, is required only to recommend investments that are “suitable” for you. In other words, a broker can legally put his own interest above yours when recommending investments “suitable” for the situation.
Advice vs. Transactions
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Since brokers are paid by commissions on products sold, there is also a subtle pressure to do transactions. Also, brokerage firms are usually investment product manufacturers who see their broker/employees as the prime distribution channel to sell their products.
On the other hand, Denarius Wealth Management is paid an advisory fee directly from the client for advice and service, usually a percent of assets under our care. We have no incentive to sell any product over another or to do trading in client accounts. This reduces or eliminates the inherent conflict of interest brokers have to create income from transactions.
Transparency vs. Disclosure
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Brokers usually follow the rules for legal disclosures, prospectus booklets and voluminous, lengthy legal documents printed in small-type in highly formal and hard-to-read language. That’s become the standard for “disclosure” for the brokerage industry.
As RIAs, we adhere to a higher standard of transparency designed to give you meaningful, relevant, and straightforward information. We will fully share details about any aspect of our service offering, and how we earn our fees. We provide clients with quarterly reports with complete transparency on the fees we charge/receive (from you). The Custodian of your assets will also report these on your account statements for comparison. We do not take any commissions or “marketing incentives” from investment product providers.
Third Party vs. In-House Custody
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Another safeguard Denarius Wealth Management employs is the use of third party custodians for your assets. Your accounts are placed at a major custodian, like Scottrade or Fidelity Investments, and are not held in-house at our firm. We have limited power over the funds held by these third party custodians. That power is limited to buying and selling securities on your behalf, moving funds between your accounts, and having funds sent directly to you via your address of record or like-registered account.
This practice was not employed by the firms involved in most of the recent fraud or Ponzi schemes. Typically, the parties involved in those fraudulent schemes had direct control of the vast majority of assets under management and direct control of most of the information about those assets (meaning generation of all statements, audit information, and periodic update materials). Those practices greatly facilitated the embezzlement and fraud. By using a third party custodian, clients are able to verify account information provided by Denarius Wealth Management against statements provided by custodians, as a check-and-balance.
Registered Investment Advisor vs. Financial Advisor/Registered Representative
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Over the past 10 to 15 years, many brokers have begun to use the title of “Wealth Manager”, “Investment Advisor” or “Financial Advisor” without accepting the fiduciary duty of a Registered Investment Advisor as described in the Securities Act of 1940. Some have no real background or training in giving advice other than the sales training they have received. Most merely adhere to the “suitability” doctrine. In fact, some very large, household-name brokerages have lobbied Congress to avoid fiduciary level of accountability being imposed on their brokers. Not surprisingly, it is common to find the “suitable” investments at large brokerages be those that pay the broker and his employer the highest fees for the sale of these products.
Financial firms continue to blur the line between broker-dealer and investment advisor by inventing and bundling new products like “Wrap” programs and “Fee-Based” platforms. Because of the diversity of these products and services, investors sometimes fail to distinguish between brokers and investment advisors. A large cause of the problems of recent years has been because of this disregard for a fiduciary premise and a drive to maximize profits for the brokerage firms and the brokers.
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Registered Representative / Broker |
Denarius Wealth Management (Registered Investment Advisor) |
| Ownership |
Large corporation with national presence. Brokers are employees. |
Locally owned and operated. Independent small business. |
| Account Placement |
Limited to Broker parent company. |
We choose an account platform that best fits client needs. |
| Breadth of Offerings |
Vast, but may direct investment to in-house proprietary products. |
Vast and open-architecture platform where only the best investments are utilized. |
| Type of Professional |
A broker is an intermediary between a buyer & seller. They arrange transactions suitable for clients. |
We manage relationships from a holistic perspective across multiple financial topics. |
| Investment Decisions |
The broker typically relies on their parent company for recommendations and portfolio allocations. |
We recommend securities and portfolio allocations in the best interest of the client. Clients have direct access to the decision maker. Investment and allocation decisions are made in a coordinated effort between advisor and client. |
| Legal Standard |
FINRA Requirement of a Suitability Standard: Broker limited to recommendations of suitable investments. |
SEC Requirement of a Fiduciary Standard: We must act in best interest of the client. |
| Investment Management Compensation |
Commissions, Loads, 12b-1s, Finder’s Fees, Sales Bonuses. Based on the Type of Securities and Number of Trades. |
Management fee based on assets under management. |
| Disclosures |
Limited disclosure requirements. |
Full disclosure requirements as required by the SEC, fiduciary law, state laws and Uniform Prudent Investor Act. (ADVII) |
| Proprietary Products |
Many brokers offer their parent company’s investment products and receive extra compensation for doing so. |
No proprietary products. We are not paid by investment companies for selling their products. We choose investments that best meet the needs of our clients. |
| Education |
Typically a sales background, but more experienced brokers have investment education. |
An investment education and financial planning background. |
