IAM has a fiduciary responsibility to clients; which is a higher level of client commitment than a broker's suitability standard
Individual Asset Management was formed with the mission to bring personalized, sophisticated, and independent investment management and financial planning services to individuals and small businesses.
Our clients trust us to help them meet their financial goals and to make their life savings grow. We take this responsibility seriously and highlight our commitment by adhering to the CFA Institute Code of Ethics. Furthermore, as a Registered Investment Advisor, we have a fiduciary responsibility to our clients – a higher level of commitment than the “suitability” standard that brokers have to their clients.
We do everything we can to ensure that our interests are aligned with those of our clients: We do not sell investment products and we have no conflicts with investment banking concerns. Our investment management fee structure is based upon the size of a client’s account not on how much trading takes place in the account and we offer a performance-based fee structure where possible.
At IAM, we take a consultative rather than a sales-oriented approach. This attitude is apparent from the initial consultation where we discuss the prospective client’s financial goals and investment expectations and clearly explain IAM’s services and investment management philosophy. Only then can we decide together whether IAM’s services are a good fit for the prospective client’s needs.
Learn more about:
- Registered Investment Advisors
Registered Investment Advisor (RIA) firms differ from brokerage firms as to the way they are licensed and in how they operate. Brokerage firms tend to be larger companies with divisions that may include investment banking, mergers & acquisitions, as well as research and private client services. Independent RIA firms are usually smaller companies that tend to deal only with investment management for individuals or businesses and therefore have no conflicts between serving their private clients and investment banking or M&A departments. An RIA firm will usually not have custody of its clients’ investments, the accounts may be held at a discount brokerage firm and the RIA may only have authority to affect trades in the account in the course of performing portfolio management services.
Brokerage firms are licensed in the United States by the National Association of Securities Dealers (NASD) and their representatives have Series 7 & 63 licenses. RIA firms are licensed either by the state in which they are based or by the Securities and Exchange Commission, and their representatives hold a Series 65 or 66 license. The important distinction between the two types of licensing is that Registered Investment Advisors are licensed to give investment advice and provide portfolio management services, whereas brokers are licensed to sell securities.
RIA firm representatives have fiduciary responsibility to their clients, whereas brokers may not. RIA firms are usually compensated for their investment management or advisory services through a fee rather than through commissions. Often the fee will be based upon a percentage of the assets under management but it may also be an hourly fee or a yearly retainer, or take some other form. Brokers have traditionally been compensated on a commission basis – that is, clients pay the broker each time an investment is purchased or sold for their accounts. This commission based system leads to the potential conflict that a broker is actually being paid to “trade” a client’s account, whereas with an RIA’s fee-based system there is no incentive for the manager to trade – the incentive is on making the assets under management grow because the fee increases in proportion.
- Fiduciary Duty
It is important to know that there are two standards in the United States pertaining to the responsibility investment professionals have to their clients. Brokers, who hold a Series 7 license, which is a license to “sell securities”, have what is called a “suitability” standard to their clients. These are typically the people who work for the large brokerage houses and Wall Street firms, and also some smaller independent firms. A suitability standard means that the broker has to recommend investments that are suitable for the client’s investment profile. This sounds reasonable but the other side of it is that the broker does not have to put the client’s interests before his own. For example, the client’s profile might call for an investment in real estate – the broker could recommend a private placement real estate deal which would pay him a 7% up front commission rather than the same deal but where he doesn’t take the commission and instead all the client’s money goes into the investment itself. Or, if the client’s profile called for an investment in a US stock fund, the broker could recommend an in-house fund managed by his own firm that pays him what are called 12B-1 fees or a commission, as compared to a different US stock fund managed by an outside firm that might be a better investment but doesn’t pay the broker anything.
Registered Investment Advisors hold a Series 65 license (or a Series 7 & 66), which is a license to “give investment advice” and we are held to a higher standard called a “fiduciary” standard. This, in essence means that we have the legal obligation to put our clients’ interests ahead of our own. So, in the example above, if we were to recommend the private placement real estate investment then we would choose the option without the commission so that all our client’s money could go to the investment – in fact sponsors of such investments typically have two offerings, one for brokers that pay a commission, and one for RIA’s without a commission. Similarly for the mutual fund example, we do not receive any additional compensation other than what we receive in the form of fees from our clients so there is no incentive to choose anything other than the best investment we can find for a client.
There is good information on the suitability/fiduciary issue here: