Saturday, July 7, 2007

Should You Become A Registered Investment Advisor?

There is a great deal of interest lately in the subject of registered investment advisors (RIA's) which defines as:

individuals "registered with the state or the Securities and Exchange Commission (SEC), who gives investment advice and manages investments for others. Typically, registered investment advisors who manage more than 25 million US dollars (USD) in investments are required to register with the SEC. Those managing less than that amount may be registered at the state level instead. "

I have had many emails from agents asking me how to become an RIA and if that seems to be a trend these days. I am in the process of reviewing companies who purport to set you up as an RIA in one seamless process for a flat fee. Perhaps in some states, this might be worth it, while in other states it is a fairly straightforward, do-it-yourself process.

With more "anti-insurance-salesperson" legislation looming, and more and more broker-dealers tightening compliance, becoming a registered investment advisor may very well be the ONLY way to stay in business in the future. I welcome those who are already RIA's to share your comments: the pros and cons, how your state deals with RIA's, issues you have encountered since becoming an RIA. Send to:

Below is an article which you should probably read if you have an interest in becoming an RIA. -TD

Are you Fee-Worthy?

By The Pareto Systems Team

This article encourages you to turn an introspective eye on the level of professionalism at your office, looking at the following three areas in brief:

As I'm sure you've heard, the 'next big thing' for financial advisors seems to be fee-based advisory services. The consensus is that if you are a financial advisor of any stripe and you plan to stay in this business and thrive for the duration, you will have to convert all, or a portion, of your business to fee based.

There are many definitions of fee-based advisory services that are worth considering; however, regardless of how you interpret fee-based, the important question to consider is: Are you fee-worthy? In other words, do you provide your clients with a better than sufficient level of service and professionalism to justify the idea of them paying a 'transparent' and preset fee or retainer for your service?

Your Professional Financial Services Practice

We have identified several areas that are essential for you to address before transforming your business to a fee-based financial planning practice. Of course, there is the ubiquitous classification of your clients, the subsequent regular and reoccurring service activities, and reviews and updates for your clients. Although essential in our experience, that's the easy part of going fee-based. Based on our talks with advisors, we constantly identify glaring holes in many of their operations. Indeed, two of the 'classics' we repeatedly encounter are:

  • Not having a documented structure and system for meetings with clients.

  • The lack of a dedicated and ongoing consistent financial planning process.

When considering a transition to a fee-based approach, advisors should really consider dispensing with the 'notepad and pen' approach (otherwise known as 'winging it'), and conduct every meeting with a client with an even higher degree of professionalism.

This replaces the 'old model' of selling that automatically takes you down the path of a transactional-based business. Nor can this be the cleverly disguised 'consultant/salesperson' process that has been the norm for years.

Your interviews with your clients have to be carefully constructed advisory meetings that include an agenda for each and every encounter. The pattern for each meeting should be identical:

  • Creating rapport with the client.

  • Your introduction to the meeting and the agenda.

  • Proceeding through the agenda.

  • The concluding remarks and summary.

  • Preparing an outline of the next steps to take.

As you can imagine, the benefits you will realize from this approach are enormous. The client perceives you as a professional, you instantly gain their trust and respect, and you have been 'commoditized' in that the client can, and will, easily communicate your services to others. As a result, clients gain a sense of relief and peace of mind. Furthermore, they learn, by design, exactly the experience and service to expect from you.


Your Financial Planning Process

Another major area of concern is your financial planning process. You can not "sell" the clients on retaining your professional financial planning services if you don't have a clear and precise process for financial planning. It is also essential that you make it abundantly clear that financial planning is an ongoing process.

It is not a single or stand-alone event. Financial planning is the process of planning for, and 'responding' to critical financial events in your clients' lives (the distinction should be made between 'responding' and 'reacting').

What does that mean? Critical financial events are any events that impact your clients' finances in any way, shape or form. Any material change in one's life can result in a critical financial event that will result in a client re-evaluating his or her goals and objectives.

Correspondingly, this will probably necessitate an adjustment in the overall financial strategy. And in as much as you review the client's circumstances regularly and make financial planning an ongoing process, it is essential that you keep the client and yourself up-to-date and informed of exactly where you are, where you have been, and where you are going.

Your Personal Financial Policy Statement

The only way we have found to do this effectively is through a process that utilizes a Personal Financial Policy Statement (PFPS). The PFPS is a document that summarizes the client's status with respect to every component of their financial circumstances. It is a template that the client can refer to which enables them to get a snapshot of where they are at any given time. It allows regular and progressive financial planning and reviews, without re-doing every aspect of an individual's financial plan. It modularizes your financial planning process to keep you and the client focused on priorities and methodically moving forward.

The PFPS, or a similar document, is essential in managing the client's expectations and your coordination of their financial planning in consideration of their goals and objectives.

We agree that the move to fee-based planning is an essential process in order for most advisors to thrive in the next decade. At the same time, we caution anyone who is hurling themselves down the path of fee-based financial planning to be absolutely sure they have a clear understanding of which fee-based approach they wish to adopt.

Whatever the approach (and it is worth reiterating), your Advisor Group must have the following in place:

  • A precise client classification system which defines regular service activities.

  • Dedicated procedures for reviews and updates.

  • A structured and formatted meeting process.

  • A process for financial planning which reflects the dynamic nature of an ongoing, progressive, fluid process

History tells us that those who emerge the strongest during times of radical change are those who have taken a leadership role and have thought it through. Before even contemplating any fee based approach, get together with your team and ask the tough question:

"Are we fee-worthy?" (

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