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No fee model is perfect: RIA Summit 2022

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Article originally appeared on InvestmentNews

No fee model can completely absolve financial advisers of any conflicts of interest, according to Knut Rostad, president of the Institute for the Fiduciary Standard.

During a discussion of fees at InvestmentNews’ RIA Summit in Boston Tuesday, Rostad said his organization doesn’t advocate for one business model over another. The goal is for independent registered investment advisers to explain to clients simply and transparently what they are paying for services provided.   

“The degree to which opacity and obfuscation [have] sort of driven too many parts of this industry in the wrong directions is what we are responding to,” Rostad said.

Courtney Ranstrom, co-founder of Trailhead Planners, said a RIA’s business model depends on three major factors: what services the firm provide, the investor demographic the firm is trying to service, and the regulatory environment the firm operates in. Many state regulators struggle to understand anything other than fees based on a client’s assets under management, but that business model may not make sense for investors working in an industry like technology, where compensation can be tied to company stock. Additionally, some clients may prefer to implement and manage their own portfolio.

Her firm, which primarily serves clients with at least $1 million in investible assets, charges a flat fee for one-time financial planning services and an assets under management fee for clients who want ongoing advice and investment management.

“The key is you have to show your value,” Ranstrom said. “I make it very clear to people that I am not the cheapest option and I’m OK with that. I am not for everyone.”

This is getting more challenging in an era of free trading and low-cost ETFs that is requiring advisers to offer additional services.

“One thing that’s really hard for me is, how do you show your value when you’re preventing someone from making mistakes that they would make when they’re doing it on their own?” Ranstrom said.

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Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture