Evolution is a wonderful thing. Without it, things would never get better. Human beings might still be living in caves. Birds might be trying to fly with no wings.
Take Google Inc. (NASDAQ: GOOG). Back in the late 1990s, Yahoo Inc. (NASDAQ: YHOO) was the king of search and email. But just a few years later, Google stepped in and introduced a whole new suite of services that crushed the long-standing champion. The end result wasn't just a big win for Google; consumers also benefited with a better user experience.
But technology isn't the only segment of the economy where evolution is replacing outdated systems. That same phenomenon is happening in financial services, and it's creating huge benefits for investors.
And there is a very good reason for that. The RIA advisory model distinguishes itself from themodel in ways that benefit investors. For example:
1. Fewer Conflicts Of Interest
For one thing, the RIA model removes conflicts of interest that are built into the profit for the house.model. and brokerage firms frequently receive kickbacks for putting clients into certain baskets of mutual funds or charge a premium for trade execution and keep a portion of that markup as
RIAs have a completely different fee structure, charging a simple management fee based upon the value of an account. Not only does this remove conflicts of interest about how advisor when the account grows.is invested, it benefits both investor and
And if the fiduciary standards by the SEC.model seems ripe for conflicts of interest, it's for a good reason. and RIAs are held to two different
Ais required only to recommend that are "suitable" for an investor. That means a can legally his own interest above the client when recommending "suitable" for the situation. But RIAs are held to a totally different and much higher standard. A RIA is required to act as a fiduciary and client interests above her own and declare any conflicts of interest that may arise.
2. More Flexibility
As totally independent entities, RIAs have much more flexibility with how and where clients invest capital. At a large brokerage firm, operate under strict rules and advisory lists dictating major decisions that most investors into a narrow range of broad-base strategies. But with their independence, RIAs can create totally customized portfolio strategies that cater to the unique needs of each individual client.
The independence and flexibility of an RIA also enables investors to choose their own brokerage firm. RIAs can work with many different brokerage firms, allowing advisors to clients a wider range of services and giving investors the ability to hand pick a custodial.
3. More Transparency
RIAs are also embracing technology and social media for increased transparency, including Facebook, Twitter and weekly newsletters to communicate with clients and make recommendations. Operating under a heavy layer of bureaucracy,don't have the tools or freedom to disseminate advice and analysis to their clients. The model is entrenched in doing things the old way.
Also, not only does the RIA modela number of benefits to investors, it's frequently less expensive.
With the mutual fund that probably underperformed its . With the model, not only are investors getting hit with high fees, it's very difficult to get a comprehensive view of where those fees are coming from. But with a simple management fee based on assets managed, RIAs keep it simple on pricing and create a highly transparent experience for investors.model, investors are paying fees, marked up execution costs, 12-b expenses, loads and management fees for a
TheAnswer: Looking forward, the trend in the RIA business is set to continue. research firm Cerulli Associates expects registered advisors to continue growing their of assets under management.
Its latest report on the industry projects the RIA channelaccount for 24.7% of assets in the by the end of 2014. The share of RIAs and dually registered advisors was 20.1% at the end of 2011, the last Cerulli has complete data.