Understanding Financial Advisors and the Companies they work for
The biggest issue that people face when looking for financial advice is finding an honest and qualified professional. While taking the first step of hiring an advisor can be overwhelming, it can be empowering at the same time. This step will begin to lay the foundation for future success and financial freedom. Before signing an agreement with any advisor, it is key to know who you will be partnering with. It is important to learn about the individual advisor as well as the company the advisor represents. This is critical to ensuring that there are no hidden conflicts of interest and your best interests are always a priority. Because of these concerns, investors should always strive to work with a Registered Investment Advisory firm and its representatives. Below, we describe the definitions for both Registered Investment Advisor (RIA) as well as Investment Advisor Representative (IAR) and why some advisors choose to use the title of Financial Advisor.
What is a Registered Investment Advisor (RIA)?
This designation is assigned to a firm who has gone through the detailed process of registering with either the Securities and Exchange Commission (SEC) or with the state securities regulator of the state where it is headquartered. All RIA firms are required to disclose details ranging from how they expect to conduct business to how much they intend to charge for services. These disclosures can be found on the firm’s Form ADV Part 2A. This form is public, and firms are required to provide clients with a copy. While approval to conduct business does not equal an endorsement of the firm’s abilities, it does ensure compliance with applicable laws and regulations at the time of registration. RIA firms are also required to file annual updates to their firm documents with the regulating body. In addition, when any major changes to the firm’s business or ownership occurs, the RIA must file an update within a specified time period. These requirements provide for one of the highest levels of transparency in the financial industry.
What is an Investment Advisor Representative (IAR)?
This title has both legal and regulatory meaning. It is given to an individual who has passed the Series 65 or Series 7 and Series 66 combination licensing exams. The person holding the title is regulated by the Securities and Exchange Commission (SEC) or state securities regulators, both of which hold advisor representatives to a fiduciary standard of care. The fiduciary standard of care is one of the highest standards of care from a legal and regulatory sense. The Investment Advisors Act of 1940 specifically defines what being a fiduciary means. It stipulates that an advisor must place his or her interests below that of the client. Being a fiduciary consists of a duty of loyalty and care and simply means that the advisor must act in the best interest of the client. Everyone looking for financial advice should seek to work with a financial professional who is held to these high standards.
This designation also provides for a greater level of transparency. The IAR may not obtain commissions from product providers or other sources without clearly disclosing it to his/her clients. The IAR is also required to make public, and provide to all prospective clients, his/her educational and business background in a document labeled Form ADV Part 2B. It is important to know that this title is not commonly used by advisors in marketing materials such as business cards, letter heads or websites due to its length and more commonly used alternatives such as Financial Advisor, or even Investment Advisor. Therefore, it is important to always ask if your Financial Professional is an Investment Advisor Representative. You may also easily and quickly search for your professional on the SEC website https://www.adviserinfo.sec.gov/.
Why use the title of Financial Advisor?
This title is commonly used by licensed financial professionals because it clearly identifies the professional as an advisor of financial matters ranging from financial planning, investment management and specialized services. Many Investment Advisor Representatives choose to use this title on business cards and letter head due to its simplicity and overall public acceptance. Unfortunately, as the title of Financial Advisor is unregulated, it is important investors do some research to ensure they are working with a Financial Advisor who is properly licensed as an Investment Advisor Representative (IAR) and held to high ethical standards.
Azimuth Financial Services is a Registered Investment Advisor, registered with the State Securities Board of Texas. As the CEO and Financial Advisor, I hold the Series 7 & 66, among other licenses, and have the legal title of Investment Advisor Representative.
The above descriptions were put together for educational purposes in order to help make sense of the designations held and used by Azimuth Financial Services and its representatives. For more information regarding Azimuth Financial Services, please contact Gabriel Garcia at firstname.lastname@example.org or visit our services page and schedule a free consultation.