Broker Check

Brokerage Sales Versus Investment Advice

While this is not an attempt to give an exhaustive comparison of working with a commissioned based broker versus a fee based investment advisor, it may help raise some awareness that could be of benefit to you down the road.

As I am sure you know, there are many ways for you as an investor to buy, secure or acquire various forms of investment products. In general, most investors will work with a commission based broker (registered representatives) through a brokerage firm or bank, transact business online themselves though a discount brokerage firm, or utilize a fee based Investment Advisor Representative (IAR) of a Registered Investment Advisory firm (RIA).

 Let’s look briefly at the difference between brokerage sales and investment advice. In my opinion, they could not be more different…..and unfortunately, many investors don’t know the difference or have never taken the time to learn the difference. We believe you should take the time.

While there are many good brokers out there and not all of them are subject to the following comments, the bottom line is, brokers generally work on commission. Their goal is to sell you something. You need to be aware of this and understand that. The only requirement a broker has under current regulations is that they have reasonable grounds to believe the product they are offering an investor is suitable.

Some brokers offer certain proprietary products or have a list of preferred product partners they lean toward offering. It may be the broker's up line manager, or even company policy that limits or restricts what the broker can offer. The broker may have production quotas to meet on certain products to receive benefits or they may be trying to qualify for an incentive trip or reward. 

We believe these types of things, when they happen, create a potential conflict of interest between a broker and their client. What’s even more unfortunate is that often times, you as the investor don’t even know that you have been steered into a specific product or offering.

An Investment Advisor Representative of an RIA is held to different standard. They are required to work in fiduciary capacity, which means putting their client’s best interest first and not operating in an environment where there might be a conflict of interest. An IAR holds a different type of license than a broker, known as a Series 65 or 66, and has passed a comprehensive examination to secure that license. 

Generally, you pay a fee based upon the assets held under management. In addition, an IAR will generally never offer proprietary products or have preferred product relationships, and if they did, they would be obligated to disclose them to you.

Don’t be afraid to ask the investment professional you are working with if they are acting as a broker selling products on commission or as an IAR in a fiduciary capacity.

What are some of the benefits of working with an Investment Advisor Representative (IAR) of a RIA.

You get tailored advice based on your individual goals. No more cookie cutter products or programs. No more proprietary products or products from preferred product partners. As an IAR we believe that our independence is a key to offering sound advice that’s based on each client’s individual needs and circumstances.

Whether our clients need help with retirement planning, a tax situation, estate planning, or managing assets in multiple places, it’s fundamentally important that we truly understand you, your goals, and your situation. As your IAR, we are in a position to do that, we pride ourselves on having strong personal interaction with each of our clients and being dedicated to their needs.

You know what you're paying for. Typically, fees are based on a percentage of assets managed.

This type of fee structure is simple, transparent, and easy to understand, and it gives us as your advisor, an incentive to grow your assets.

It’s a different kind of relationship. We typically form close relationship with our Managed Account clients and have a strong sense of accountability.

Our goal as your IAR is to help find solutions that are closely aligned with your needs and objectives, and enjoy a deep, personal relationship with you as our client. This often involves regular, ongoing interactions. And because we are entrepreneurial business owners, the buck stops with us, so we have a strong sense of personal accountability to our clients.

You know where your money is held.  When working as your IAR on select investment platforms we have access to a variety of institutional custodians like Fidelity, Schwab, and Pershing, LLC, a Bank of New York Mellon company, each of which are members of the Securities Investor Protection Corporation (SIPC).

Custodians also provide important infrastructure services, such as executing trades and preparing monthly brokerage statements for our clients.

Interested in learning more? Click here or Call us Today.

We want you to know that as an accommodation to the diverse group of clients we have gained over the years, and in order to be able to continue to service those clients’ assets that are not in Managed Account programs, we, Paul D. Schrette and Joseph V. Lee, are licensed as Registered Representatives and as Investment Advisor Representatives through Madison Avenue Securities, LLC.

Today, when it comes to the investment management of our new client’s assets utilizing our Managed Accounts program, it’s our primary objective to work with our clients as an independent Investment Advisor Representative and not as a Registered Representative. If we ever choose to do differently, we would be obligated to disclose that to you.

Paul D. Schrette and Joseph V. Lee are Registered Representatives of Madison Avenue Securities and there are times when we may charge a commission and execute a transaction. 

In addition, we are independent in the sense that through Madison Avenue Securities, LLC (MAS) we do not sell proprietary products nor does MAS offer proprietary products. However, by being a Registered Representative of MAS, the only securities we can offer and execute are the securities that MAS has approved.