Is Your Financial Advisor on Your Side?

Author: Sanjeev Sardana
President and CEO, BluePointe Capital Management LLC
From traditional brokers to independent financial advisors, where can the high net worth investors turn to for objective financial advice that meet their specific needs? The ups and downs of 2008 served a wakeup call to many wealthy investors and left them wondering just what was going on with their investment portfolios. As banks and brokerage firms reacted to the policy changes enacted by Treasury officials in Washington DC, the investors were afraid that the brokers might not even be around to manage their families’ savings. If their broker were still employed, he was likely to be facing his own challenges in the rough market conditions. He was condemned to perform the delicate act of keeping his job by balancing a revenue quota and allocating enough time to focus on analyzing and rebalancing his current clients’ portfolios.

Conflicts of interest in the money management business are plenty, and investors need to ensure that the advice from their financial advisor is as independent and objective as possible. The financial advisory space is crowded, and the landscape of Wall Street has dramatically changed within a year. Performance is one concern, but ensuring that your financial advisor’s interest is aligned with your own has become the primary concern. Some questions you may want to ask your advisor:

1. How are you Compensated?

Pay close attention to the answer, as there could be some hidden or undisclosed fees associated with the investments recommended by your broker.Often a fee is ‘built-in’ or considered part of the purchase price, and this may take the form of a ‘sales load’ (a charge passed along to the selling broker) or higher ‘expense ratio’ (consisting of various costs of the fund) in the case of buying a mutual fund. Brokers may also receive a ‘placement fee’ (a one-time commission paid to the selling broker) and ‘trailer fees’ (ongoing quarterly servicing charges) for each client they line up to invest in a particular ‘alternative’ investment, such as a hedge fund or private equity fund.

2. Is the Product being Recommended an ‘Internal’ Product?

Brokerage firms typically incentivize their brokers to push products, which will deliver the maximum revenue to the firm. These investments are considered ‘internal’ and firms have a fiduciary interest in selling them. The needs of the individual investor or the suitability of an investment may not even be considered when a particular recommendation is made.

In a sustained bull market, any particular investment may perform well; and as far as the client is concerned, the initial reason for choosing a particular investment may not even matter as long as its value increases. From the broker’s perspective, regardless of whether the investment increased or decreased in value, his commission is earned at the time of sale. Looking back at a year such as 2008, an inevitable feeling arises that the investor could have been served better with better objective advice.

The New Age of Independence

Financial advice will always be in abundance, but where can an investor turn to when it comes to managing their life-long accumulation of wealth in a way that is suitable to their own specific situation? In the past, high net worth investors have felt most comfortable having their assets held at one of Wall Street’s popular top-tier firms, dealing with a highly compensated ‘private banking’ associate in an expensive suit, feeling assured that the best and the brightest minds were providing insight into managing their portfolio.

The Landscape has Changed

Many bright individuals in the financial advisory business realized that they could better serve their clients in an independent environment, where the needs of the client come before the necessity to generate revenue for their firms; hence, the proliferation of Registered Independent Advisors over the last two decades.

There are three main categories that financial advisors fall into. First is the ‘Full-Commission Broker’, which most investors are familiar with. Most of these representatives make their living off the revenue generated from commissions on products sold, while some are able to generate revenue from fee-based payments – the latter often lead the clients to believe that they receive the benefits of a typical ‘fee-only’ advisor. These firms typically offer investment-banking services, which can be in conflict with the best interests of the investors.

The two types of advisors often associated with ‘independence’ are ‘Independent Broker-Dealers’ (IBDs) and ‘Registered Investment Advisors’ (RIAs). Independent Broker-Dealers are registered with, and regulated by, the National Association of Securities Dealers (NASD). Although some IBD’s operate fee-based businesses, their NASD securities licenses also allow them to charge commissions on securities transactions and product sales, which most take benefit of. If a broker is affiliated with an Independent Broker-Dealer, his brochure or business card might read ‘Securities offered through ………’. This may indicate a focus on securities or product sales rather than advice.

In contrast, Registered Investment Advisors are registered with the Securities and Exchange Commission (the SEC) or their state securities regulator. They are regulated by the Investment Advisors ACT of 1940, which means they have a fiduciary responsibility to act in the best interests of their clients. Fee-only investment advisors do not accept any commissions from funds they advise their clients to buy. As a result, there is usually no incentive for a fee-only investment advisor to recommend one particular fund or product over another. Their only source of revenue is a fee, which is typically based solely on assets under management. The larger a fee-only advisor grows his clients’ assets, the better he does. This arrangement exposes the investor to few, if any, conflicts of interest and directly aligns his interests with those of his clients.

When selecting an independent RIA, make sure that you do your homework. You might want to perform a background check on the advisor. RIA firms are required to make available an ‘ADV Form’, (also kept on file with the SEC), which is a comprehensive report containing financial information about the firm. Most importantly, you must ensure that they are using a highly reputable and independent custodian, as this is where your assets will be held.

Can I Benefit from the Help of an Independent Advisor?

The high net worth investors may fall into one of the following categories when it comes to their financial advisory relationship – 1) those who have grown complacent to their current broker due to a long history of working with them (“Jim has always been my broker, and he even knows all of my kids’ names!”), 2) those who believe that they could be better served elsewhere but don’t have the time or energy for the research involved, and 3) those who are actively looking for professional guidance to help manage their financial investments as opposed to leaving their financial future to chance.
Some investors may consider a financial advisory relationship when their financial affairs have become so complex that they cannot effectively manage them on their own. Triggering factors may include extraordinary income due to an asset sale, executive compensation, business liquidation, or changes in family dynamics requiring revisions to an estate plan.

The first step in the reevaluation process is to consider an objective advisor with whom you not only feel comfortable, but whom you believe will help achieve your family’s financial goals. The relationship you build with your financial advisor is one of the most important relationships you’ll ever have. You will be disclosing personal information about your family’s finances as well as your financial goals and concerns. Your advisor will help and guide you in making some of the most important financial decisions throughout your life. Ideally, the relationship will span many years and perhaps into the next generation.

Complex Investments

Some high net worth investors may fear cutting-the-cord with their private bankers due to the varied and multiple investment products they have invested in. This is where doing your homework in researching independent advisors can really pay off in the long run. While some independent RIAs might focus exclusively on providing low-cost, passive strategies of investing solely in mutual funds or exchange traded funds (ETFs), many are well versed in highly sophisticated strategies involving private equity, hedge funds, options, insurance-policy investments, and more. These independent advisors often provide advice on a client’s entire financial portfolio, and only after thorough consideration and with due diligence will they determine whether specific investments are appropriate for a client’s asset allocation.


Sometimes it can take a major shakeup in the markets to spur investors to reassess the advisor they have entrusted their financial future with. In other words, investors attempting to go it alone may realize that their goals of preservation and growth may be better served with the professional guidance of a knowledgeable advisor. Whatever the causes that led to this decision, choosing an objective, independent advisor that understands your family’s financial goals and will work hard to help you achieve them can be the soundest decision of all.
Previous  article
Next article
Write your comment now

Email    Password: 
Don't have SiliconIndia account? Sign up    Forgot your password? Reset
Reader's comments(2)
1: From: Mrs. Mary David

This mail may be a surprise to you because you did not give me the permission to do so and neither do you know me but before I tell you about myself I want you to please forgive me for sending this mail without your permission. I am writing this letter in confidence believing that if it is the will of God for you to help me and my family, God almighty will bless and reward you abundantly. I need an honest and trust worthy person like you to entrust this huge transfer project unto.

My name is Mrs. Mary David, The Branch Manager of a Financial Institution. I am a Ghanaian married with 3 kids. I am writing to solicit your assistance in the transfer of US$7,500,000.00 Dollars. This fund is the excess of what my branch in which I am the manager made as profit last year (i.e. 2010 financial year). I have already submitted an annual report for that year to my head office in Accra-Ghana as I have watched with keen interest as they will never know of this excess. I have since, placed this amount of US$7,500,000.00 Dollars on an Escrow Coded account without a beneficiary (Anonymous) to avoid trace.

As an officer of the bank, I cannot be directly connected to this money thus I am impelled to request for your assistance to receive this money into your bank account on my behalf. I agree that 40% of this money will be for you as a foreign partner, in respect to the provision of a foreign account, and 60% would be for me. I do need to stress that there are practically no risk involved in this. It's going to be a bank-to-bank transfer. All I need from you is to stand as the original depositor of this fund so that the fund can be transferred to your account.

If you accept this offer, I will appreciate your timely response to me. This is why and only reason why I contacted you, I am willing to go into partnership investment with you owing to your wealth of experience, So please if you are interested to assist on this venture kindly contact me back for a brief discussion on how to proceed.

All correspondence must be via my private E-mail ( for obvious security reasons.

Best regards,
Mrs. Mary David.
Posted by: mary lovely david - Monday 26th, September 2011
2: Hi my dear,
My name is Mounace, i would like to establish a true relationship with you in one love. please send email to me at ( i will reply to you with my picture and tell you more about myself. thanks and remain blessed for me,
Your new friend Mounace
Posted by: mounace love love - Thursday 09th, June 2011
More articles
by Kaushal Mehta - Founder & CEO, Motif Inc..
The retail industry is witnessing an increased migration of customers from traditional brick and mortar retail to E-commerce (online retail)...more>>
by Samir Shah - CEO, Zephyr .
You probably do because you are on the phone with them! For all of you working in some technical management capacity here in Silicon Valley,...more>>
by Raj Karamchedu - Chief Operating Officer, Legend Silicon .
These days are a mixed bag for me. Of late I have been considering "doing something bigger and better," in my life, perhaps seriously though...more>>
by Madhavi Vuppalapati - CEO of Prithvi Information Solutions .
IT Services Rise of Tier II companies The Indian IT outsourcing industry is going through very exciting phase in its business life...more>>
by Bhaskar Bakthavatsalu- Country Manager, India and SAARC of Check Point Software Technologies.
Data loss occurs every day through corporate email. In fact, given the sheer number of emails an organization sends every day, data loss inc...more>>