CHOOSING A RIA
What We Would Look for If We Were Hiring a RIA
There is a lot of information to absorb, and we thought it might be helpful to list some of the items that we would look for if we were hiring a RIA. This should be interpreted as our opinion only and used simply as a guide for some of the things you may want to consider.
Fee Only Pricing: We believe RIAs that work on a fee only basis (vs. commissions for product transactions) significantly lower conflict of interest and keep the focus on the client rather than the paycheck of the advisor.
Asset Management: As true asset managers with our in-house DBS Portfolios, we believe we can offer clients sound investment strategies without double layering fees that may be seen by RIAs that outsource asset management.
Ownership: We believe owners of a RIA firm should have Extensive Experience in the investment industry and Direct Investment in their own asset management program.
Fees: Fees charged for investment advisory and asset management will greatly affect your return. Our fees are negotiable, with maximums set forth in our ADV2A and Investment Advisory Agreement. There are many variables as to how fees are reasonably set, but generally, passively managed accounts should be subject to a lower fee percentage than actively managed accounts. Larger accounts should be subject to a lower fee percentage than smaller accounts. Our research shows us that, on average, an investor with a RIA typically pays 1% for investment advisory advice plus the percentage charged by the asset manager (typically in the 0.50% to 1% range). Again, this is only a guideline and your advisor and selected asset manager’s fees may vary.
Personalized Portfolio Construction and Account Service: No two investors are the same, but all investors deserve excellent client service. At Duncan McHugh Investments, we take the time to provide personal asset allocation recommendations and portfolio construction. Our “Client First” attitude requires our client services to be unparalleled. At Duncan McHugh, we work for you.
Custodian: Your RIA should not also be your custodian. They should not hold any of your assets and they should not issue your official client account statements. These services should be handled by a separate qualified third-party custodian such as Charles Schwab, TD Ameritrade, Pershing, etc.
WHAT IS A REGISTERED INVESTMENT ADVISOR (RIA)?
According to the SEC and the Investment Advisers Act of 1940, a Registered Investment Advisor (RIA), is a person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports, or furnishing analyses on securities.
There are many firms and individuals that hold themselves out to be Investment Advisors. Some of these include registered representatives of full service and discount Broker Dealer firms. Insurance agents, CPAs and bankers may also hold themselves out as Investment Advisors.
Investment Advisors of a RIA are held to a different standard, a higher standard, than advisors from any of these other types of firms. A registered investment advisor has a fiduciary, a legal obligation, to act in a client’s best interest at all times. Recommendations from an advisor of a RIA need to be not only suitable for your situation, but must always be in your best interest. A non-fiduciary advisor is typically not held to this same standard. Instead, non-fiduciary advisor recommendations are typically only required to be “suitable.” This leaves the question as to whether their recommendations, while assumed suitable, are in your best interest. This is something very difficult for the average investor to determine.
All RIA firms must obtain registration, larger firms register with the SEC, smaller with their state securities agency. Our firm is registered with the SEC. We are required to file important documents, known as ADVs, with the SEC and send updated documents our clients annually. These ADV documents provide disclosure information about ownership, assets under management, business practices, and any disciplinary events. Before you choose a RIA, you should ask for a copy of the firm’s ADV2A. A copy of our ADV2A is available on the SEC’s website at www.adviserinfo.sec.gov. On this site, you can search by our CRD number 174901. (WealthPoint Investments LLC DBA Duncan McHugh Investments).
Our RIA firm requires all representatives who work directly with investors offering investment advice to hold a Series 65 or Series 66 securities license. The Series 65 securities license, also called the Uniform Investment Adviser Law Examination, covers laws, regulations, ethics and topics such as retirement planning, asset management strategies, and fiduciary responsibilities. The Series 66 securities license is the equivalent to successful completion of both the Series 63 (state) and Series 65 exams.
In years past, most RIA firms employed asset managers who invested client accounts in portfolios of individual stocks, bonds, and other securities, without outsourcing that job to a third-party. These asset managers analyzed company balance sheets, income statements, annual reports, and other financial and market data to decide which equities represented the best long-term, risk-adjusted probability of providing sound returns to their clients. As the RIA industry has grown, many firms are not set up to offer in-house asset management, as seen in years past. Instead, most RIAs offer recommendations as to asset allocation and outsource asset management.
Duncan McHugh Investments is an exception to this. Our in-house DBS Portfolios, managed by our asset management division, WealthTrust Asset Management, offer investors a selection of nine investment portfolios that can be stand-alone investments, or blended for a more custom approach. It is important to note that our advisors are not required to recommend investment in our DBS portfolios to any client.
Part of your decision-making process in choosing an advisor is to know how they are paid. If he or she is paid on a commission basis based on the transactions you make, in our opinion, your relationship will be plagued with conflicts of interest. At Duncan McHugh Investments, our advisors are paid on a fee basis for investment advisory, the advice given to help you meet your goals, and, in some cases, asset management.
Fees are based on either a flat dollar or percentage of assets under management. Financial planning fees are based on either a flat dollar or hourly basis. Our fees are negotiable. There may be additional transaction costs charged by your custodian. Duncan McHugh Investments does not receive compensation from these custodial transaction costs. You will know, up front, the cost of doing business with Duncan McHugh Investments. We believe in full transparency.