It's said that a journey of a thousand miles begins with a single step. I agree with this but it feels like there are many first steps leading you to that first, single step.
Well, this is my "single step". After years of working in the brokerage industry and thinking that there must be a better way, I am opening my own fee-only registered investment advisory firm. What is a fee-only registered investment advisory firm, you ask?
First, it's a mouthful so let's just call it a RIA. RIA firms help investors with financial planning, their investments, and do so in a way that's different from what you might expect. When most people think of investments they either quickly think of something else, or they imagine going to visit a "stockbroker" who sells them a hot stock or a can't-lose mutual fund. Sounds fun, right? The broker charges them a commission (usually a large one) and then calls you when there's another hot investment they want to sell you. Oh, and they also charge another commission.
There's a fundamental flaw in this scenario caused by three main factors:
First, when you go visit the broker you're at a disadvantage because they (presumably) know more than you do about investing and how the markets work.
Second, the broker has no incentive to help you, give you advice, etc, unless they sell you something. So they're going to try and sell you something, period.
Third, the broker doesn't have any legal liability for what they've sold to you, other than to try to ensure it's "suitable" when they recommend it. (This means they just need to ask some basic questions and, if you answer yes, they can call the investment suitable. Even though it may not be.)
Starting to see the fundamental flaw? The flaw is that the broker holds all the cards and, since you're the one holding all the money, the broker can play the cards any way they want so they can get access to your money. Does this seem fair? This isn't to say that every broker is out to fleece you, far from it. But how do you really know? The investment realm is complicated enough already. There is a better way.
RIAs work for their clients, not a brokerage company. They work based on a fee you pay them which isn't connected to the investment being offered. For example, say the best advice for you would be to buy a low cost index fund. The primary reason the index fund is low cost is that there isn't a commission paid to the broker. Do you think the broker would offer you the investment? The RIA would, if it's best for you, and if it's good quality. The reason is that you pay the RIA for advice, not products. This sounds like a subtle difference but it's really profound and often leads to better advice, better outcomes, and lower costs.
So after years in the brokerage industry my RIA opens today. I'm calling it Ridgeview Financial Planning and am extremely excited to get started.