Know Your RIAs, FAs, & CFPs...

For those of you who know me well, I tend to beat the consumer advocacy drum pretty consistently - And I named my company Alexis, which is Greek for helper, defender, and advocate, in an effort to reinforce this point.We encourage all investors to ask the following questions:

  • To your advisor - "What are my total annual fees?"
  • To yourself - "What do I expect from my advisor in exchange for fees paid?"

One of my goals in establishing Alexis Advisors is to seek to help individual investors and small business owners understand what it means to work with a Registered Investment Advisor (RIA). As I was preparing to write this newsletter, Ben Steverman, a Bloomberg columnist, helped me along with his 2/23/15 article titled "Five Ways Your Financial Advisor Can Screw up Your Retirement, Legally." While I am not a fan of the title, Steverman explains some of the potential challenges faced by investors not working with RIAs.

Right now, only some Financial Advisors are RIAs. Registered Investment Advisors are fiduciaries, which requires us to put our clients’ needs first, before our own interests. Many brokers and Financial Advisors, on the other hand, aren't fiduciaries, and need only to recommend “suitable” financial products.

You might ask yourself, what’s the big deal? The key points from Steverman's article are as follows:

1) Load FeesWhen investors buy a mutual fund from a broker, the mutual fund may be deemed “suitable” to meet their goals, but may carry a front-load fee. This is a one-time fee, which can be as high as 5%. These fees are primarily paid to the broker and the broker’s parent company as an incentive for selling the mutual fund.

In spite of the proliferation of lower cost options, such as Exchange Traded Funds (ETFs) which don’t carry a front-load fee, the Investment Company Institute estimates that $630 billion in load funds were sold in 2013 (the latest data available), the most since 2008, and up 19% from 2012.

2) Opaque FeesMutual funds may also include other fees, which are tough to spot. For example, a “12b-1 fee” can be tacked on to a fund’s expenses every year, with ongoing proceeds often going to the advisor years after he or she sold the fund. Most of these charges are likely disclosed in the small print, but it can be difficult for investors to add up all the fees paid to an advisor.

While these products may be "suitable," commissions, including load fees and 12b-1 fees, may give advisors an incentive to recommend certain investment products over others. Firms can also give advisors bonuses for steering client money into the firms’ own proprietary funds. Exchange Traded Funds, on the other hand, tend to have lower fees, and don’t typically pay fees to the advisor.

3) Active Fund ManagementDuring a bull market (when the stock market is moving up), history has shown that low-fee index funds have performed as well as, or better than, actively managed mutual funds. An actively managed approach may help mitigate the effects of a bear market (when the stock market is moving down.)

However, if you want your assets to be actively managed, it may be worth considering working with an advisor who directly manages the investments, rather than one who outsources this to higher cost mutual funds. Why? Because if a RIA is taking an active approach, s/he will likely strive to keep costs down by using ETFs; additionally, if you have questions about the strategy, it’s a lot easier to contact your advisor than a mutual fund manager.

4) Performance ImpactThere is no doubt that commissions and fees impact the performance of your account. Therefore, investors need to understand their total costs, as well as ask themselves, "why am I paying these fees?"

We are pretty clear about why our clients pay us . . . .  While there are never any guarantees, our actively managed approach strives to mitigate the effects of big bear markets, which can be devastating when striving to save for college or retirement, or meet other financial goals.

5) 401(k)-IRA RolloversFor many with a 401(k) who are approaching retirement, the best option may be to do nothing – that is, to leave your assets in your 401(k). Typically, these plans offer an array of investment choices, with relatively low fees.

A question to ask your self when considering rolling over your 401(k) into an IRA is "what is the potential benefit from the rollover?" If your advisor is applying a passive investment approach, then there may be less benefit, given that you may be able to implement a similar approach.


The White House is throwing its weight behind this issue, with the goal being to end biased advice that it estimates costs investors $17 billion a year. We shall see. We are not holding our breath given the strength of the Wall Street lobbyists.

If you would like to read the full article, click here.

In the meantime, when seeking financial advice, you may want to consider working with a fee-only Registered Investment Advisor, or in the case of financial planning, a fee-only Certified Financial Planner. If you want to learn more about our RIA services, please give us a call.

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Core Tenets

Information contained herein is for informational purposes only and is subject to various interpretations and time frames, and should not be considered investment advice. Advice may only be provided after entering into an advisory agreement with Alexis Advisors, LLC (“Advisor.”) Advisor does not assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein. Advisor shall not be liable for the improper or incomplete transmission of the information contained in this communication. Past performance is not indicative of future results while changes in any assumptions may have a material effect on projected results. Third Party Research Disclaimer: Third party research is provided for information purposes only and has not been prepared by Alexis Advisors, LLC. The information contained herein is based upon sources which we believe to be reliable, but no representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in the reports. About : Alexis Advisors, LLC is a Registered Investment Advisor with the Commonwealth of Virginia. Advisor’s current Disclosure Brochure is set forth on Form ADV Part 2 and is available for your review upon request. Please contact Advisor promptly if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account.