All three market indices were up last week, despite concerns of tariffs and inflation. Much of this is due to market fundamentals, as companies report earnings and we see if they are earning as much as – or more than – expected. That is the true price of a stock – how much people believe the company will earn in the future. While regulatory changes can impact earnings, most of a company’s value comes down to what it sells, and if it continues to do so profitably over time.
Continuing our discussion of types of advisors, the last of three is the IAR, or Investment Advisory Representative. If those initials aren’t enough, an IAR works for an RIA, a Registered Investment Advisor. To be an IAR, and advisor needs to have passed the Series 65 exam or hold the CERTIFIED FINANCIAL PLANNER™ certification. A CFP® professional has completed extensive coursework, the equivalent of nine college courses, passed the examination, and has 4,000 hours of experience in financial planning under the supervision of a CFP® professional. The pass rate for the CFP® exam is typically between 63% and 67%.
If someone works as an IAR, they are held to a fiduciary standard. This means that they must act in the client's best interest. Part of this duty includes educating themselves on multiple options, so that if they recommend a particular investment vehicle, they should be able to explain why that one is preferrable to others, or why this particular company is better.
IARs work for a fee instead of a commission. This can be paid three ways – on an hourly basis for advice, as a flat fee for financial planning, or as a percentage of assets under management or advisement. The hourly rate and flat fee are self-explanatory: you should know what the charges will be and what you will receive in return. For investment management, fees are taken from the account either monthly or quarterly. When your accounts increase, your advisor earns more. When your accounts drop – and they will – your advisor earns less. An advantage to this method is that your advisor has no incentive to recommend one product over another outside of their belief that it is the best option for you. They are paid the same regardless of the underlying investments. They also don’t need to sell things, or place trades, to make money.
There are still some questions to ask if you are working with an IAR. First, ask if the fees are in advance or in arrears – meaning, are you charged when your money first goes into the account with them, or at the end of the fee period. You should also ask if accounts are householded. Many advisors charge a tiered fee, so that as the assets they manage for you increase, the percentage they charge decreases. If your accounts are grouped together, or householded, you will reach those discount points sooner than if each account is charged individually. Some advisors will also extend the grouping to include other family members. You should also ask if they charge fees on cash. And finally, you should make sure the fees on the underlying investments are also disclosed. If you are in mutual funds, ETFs, or other types of managed accounts, there are fees associated with those investments, and those fees are in addition to your advisor’s fee.
Your action item this week is to change the filter in your HVAC. It helps the system run more efficiently and helps your indoor air quality.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.