Many of our clients have heard us say we are skeptics of our own industry. Sam Harris, Founder of Patina Wealth, has worked in the investment industry for more than 23 years. We have seen many ways investors can be taken advantage of. As a result, we choose to align ourselves with our clients’ and to act as a partner in their financial lives. Our goal is to be someone who they can trust to act in their best interests and provide objective advice.    

As you might expect, this isn’t always the case in our industry. We love what we do and work hard to bring value to our clients. Unfortunately, the investment industry can be a scary place where unscrupulous participants take advantage of investors. We despise this activity and strive to bring awareness to these pitfalls to help people avoid them. We hope you share these thoughts with friends and family as we collectively try to move the industry in a better direction.

One of the biggest issues in the industry has to do with conflicts of interest. To understand this issue, one first must understand that the investment advice industry is generally broken into two main categories (1) registered investment advisors (“RIAs”) and (2) broker dealer representatives (“BD Reps”). Below are some of the issues that are common to broker-dealer firms.

1. Commissions – Some BD Reps accept commissions from the funds that they are buying on your behalf. These are funds with “loads.” For example, on a million-dollar purchase, a $10,000-50,000 payment (i.e., “kick back”) to the BD Rep is not uncommon. Obviously, this creates a horrible conflict of interest as BD Reps may be encouraged to buy a fund on your behalf that provides the biggest payment as opposed to the one that is in your best interest. A good way to find the answer to this is to simply ask them how they are paid.

2. Self-Promotion – Broker-dealer firms often have proprietary products (e.g., mutual funds, exchange-traded funds (“ETFs”) and insurance vehicles). Generally, BD Reps receive incentives to place money in products created by the firm that employees them. This activity also creates a huge conflict of interest leading to your money being invested in products that may not yield the best results.

3. Trading Fees – While this issue is less common today, BD Reps once earned much of their compensation by placing trades. So, “churning” (i.e., trading more than is appropriate) was a common issue that eroded account performance while yielding profits for BD Reps.

Patina Wealth works hard to avoid any of these types of conflicts of interest. As a Registered Investment Advisor, we have a “fiduciary duty” to you, which means that we must always place your interests ahead of our own. In fact, this is true for all Registered Investment Advisors, so as a general rule, you may be better off choosing a Registered Investment Advisor over a BD Rep. Patina also only gets paid by you, its clients. Patina will never accept commissions and is not compensated by any other source that could create a conflict of interest.  We also do not get paid for placing trades, and we only use investment products that don’t have a transaction fee. Lastly, we have no affiliated firm that offers products; therefore, we are free to place your money in the best available product from a variety of fund managers.

Some of the other issues that are present in the investment management industry are a bit harder to spot. Below are a few of the issues that we advise investors to be on the lookout for.

1. Poor Service – Investment professionals have a history of taking on too many clients, thereby causing service levels to drop. At Patina Wealth, we limit the number of clients per financial advisor so that service levels remain high. We think it’s important to be available to clients when they need ad hoc consultation, and we encourage it.

2. Ineffective Portfolio Construction – The investment landscape is an increasingly complex one. New investment products are being launched every day that allow more targeted portfolio exposures (e.g., to sectors, factors, geographies). Unfortunately, many investors are invested in funds that have very broad market exposure and, typically, size-weighted indices. While it requires additional work and diligence, we see the opportunity to add value through more active management and rebalancing using more targeted funds including sector specific products.

In summary, the financial advice industry has a checkered past but has been moving in the right direction. It’s up to investors and industry participants who align themselves with clients to keep the momentum going. If we can ever be of assistance on this front, please let us know.