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The Alternative to Business as Usual on Wall Street


Now that Wall Street’s giant investment banks have proven themselves hopelessly corrupt, colossally incompetent, and spectacularly insolvent, it’s important to understand your options. Investors have every reason to be concerned about their financial institutions. There is an alternative. You don’t have to take it anymore.

Now that Wall Street’s giant investment banks have proven themselves hopelessly corrupt, colossally incompetent, and spectacularly insolvent, it’s important to understand your options. Investors have every reason to be concerned about their financial institutions. There is an alternative. You don’t have to take it anymore.

As the owner/founder of an independent registered Investment Advisor firm, I believe that our business model and structure offer compelling advantages to investors. While these advisors may be small in comparison to their better-known “wire house” competitors, they carry none of the odious baggage Wall Street has become synonymous for. As a result, they are rapidly gaining market share among informed investors.

Advice. The only way you can insure that you are getting objective advice is to remove the conflicts of interest and fully disclose all sources of income. It strains credibility to believe that a commissioned salesman incented to sell a profitable product for his employer can always have your best interests at heart. To simplify the choice facing the broker, let’s imagine a very conservative prospect wishing to invest $1,000,000. One choice might be a Treasury bill; net commission $25. At the other end of the compensation spectrum, another choice might be a deferred annuity; net commission $120,000. In an atmosphere where commissions and conflicts of interest are seldom disclosed, the potential for mischief is enormous. Bad advice can be very expensive indeed.

We all know that a pure heart and an empty head are not enough. There is no substitute for competence. Many fee-only independent registered investment advisors have assembled formidable talent rivaling or exceeding the name-brand institutions. You should always consider your advisor’s education, experience, and professional credentials before entrusting your hard-earned money to them.

Custody. You can’t keep your securities under the mattress. A financially solvent custodian is essential for providing safeguarding, record keeping, tax information, clearing, and order execution. The markets are interesting and challenging enough that you don’t want to wonder if your brokerage house will survive. Yet the big Wall Street firms’ capital markets divisions jeopardized their financial integrity by recklessly betting on exotic derivatives and huge leveraged positions in junk mortgages. Prudence and fundamental risk management were trumped by greed and hubris, with the inevitable catastrophic outcome. In the process, the big players proved conclusively that not only are they not fit custodians of your funds, they don’t even know what they own themselves. Now they are little more than wards of the state.

Few independent fee-only registered investment advisors custody assets. Instead, they most often utilize the services of America’s large discount brokerages. These brokerages are household names but do not have capital markets divisions making risky leveraged bets for their own accounts. Their financial stability is not imperiled. Rather, they stick to their knitting of custody, clearing, and order execution for their customers. In each case, a large part of their total business is providing institutional services for the clients of independent advisors. Importantly, there is no financial compensation between the advisor and brokerage house. The clear separation between the advice and brokerage functions is the investor’s best protection against tainted advice.

Product. Even great advice would be of limited value unless it could be executed with outstanding financial products. Here, the independent advisor has a huge advantage over the Wall Street giants. The advisors have access to an almost unlimited menu of institutional class product choices to construct true open architecture solutions tailored to the client’s unique needs. With no conflicts of interest and no sales quotas or institutional pressures, the advisor is free to select best of breed products for every asset category.

True institutional class, no-load, no commission products typically provide enormous cost savings when compared to retail products distributed by the Wall Street denizens.

The Alternative: a fee-only independent registered investment advisor. One that sells only investment advice and management service, and assumes fiduciary responsibility for each and every account. One whose structure yields enormous advantages to investors in both quality and price.

Fed up with Wall Street? You don’t have to take it any more.

Frank Armstrong, CFP, AIFA

Do-It-Yourself Toolkit To Navigate Your Financial Future

Frank Armstrong III is founder and CEO of Investor Solutions, Inc., an independent, fee-only investment management firm in Coconut Grove, Florida. The firm has been named on Bloomberg’s list of Top Wealth Managers, rated a “Five Star” on the Paladin Registry, and selected by Barron’s as one of the top “100 Best” Independent Financial Advisors in the country. Frank has more than 35 years experience in the securities and financial service industry. He contributes to major publications and appears regularly on television and radio. He is the author of the forthcoming book, THE RETIREMENT CHALLENGE—WILL YOU SINK OR SWIM? A Complete, and the bestseller, THE INFORMED INVESTOR: A Hype-Free Guide to Constructing a Sound Financial Portfolio.

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