Should you give your RIA Full Discretion?

From the desk of Charlie McCullough

Charlie McCullough

The other day I was talking to a friend about retirement planning and the importance of working with a trusted financial advisor. I told them about my relationship with the team at Financial Fiduciaries and why I thought fee-only services were valuable. As the conversation commenced, we started talking about whether or not it was a good idea to give an RIA full-discretion to make investment decisions (discretionary investment management) or if an advice based arrangement would be a better idea (with the individual making the decisions based on the advice of a broker).  It was a fruitful discussion in which we came up with many pros and cons. Here are a few of the things we considered:

  • Tying their hands – A non-discretionary advisor has their hands tied when they see an opportunity that requires a quick decision. If they must first obtain client approval, the opportunity could pass them by or a difficult situation could worsen. Discretionary advisors are able to take action on their recommendations which could make a real impact on the performance of the investor’s portfolio over time.
  • Do you trust your Advisor? – An advisor who has discretionary rights must act within the fiduciary standard. This means that the client must have the utmost trust that the advisor will work within their best interest.  Additionally, in order for this type of arrangement to be effective, the advisor must have an intimate understanding of the client’s financial goals and their current financial situation.
  • Can you make a quick (educated) decision – In the end, if you do not give a trusted advisor discretionary interest in your accounts you need to take on the role yourself. How confident do you feel making quick and educated financial decisions? What would you do if the market took a turn for the worse? Do you have the free time and the market knowledge to give educated oversight to your portfolio?
  • Who will profit from the decisions? – A fee-only advisor does not profit from the decisions they make on your behalf. Rather, they make their money by providing the best possible advice. If a broker does not want to take on the discretionary investment management role, perhaps they do not want to be responsible for their bad advice.

There is a lot to consider when giving your advisor discretionary responsibility of your accounts. In the end, the best advice I could give my friend was to seek a trusted professional and find out if they are a Fiduciary. This is the best protection for your portfolio and your financial future.

 

Charlie and Lisa McCullough are fictitious characters who are utilized to illustrate situations in which people might find themselves.  Their family and friends are also fictitious.  While their stories are inspired by actual situations encountered by Financial Fiduciaries professionals working with clients and prospective clients, they are not intended to provide any specific investment advice.  Each situation is different and any general advice provided in the context of these articles may not be suitable for all individuals.  Always consult a professional for advice specific to your situation.

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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