Form ADV is used by Registered Investment Advisors to register with the Securities and Exchange Commission (SEC). It contains information about the advisor’s business, employees, services offered, and much more.
Someone who supports, promotes, and defends the interests of another; a proponent or champion. See also Financial Advocate.
An investment account owned individually or jointly with someone else. Monies placed in this type of account have already been taxed at the federal and state levels and are thus known as after-tax dollars. Realized gains in an after-tax account are subject to the prevailing capital gains tax rates, either short-term or long-term based on the holding period. Contrast an After-Tax Account to a Retirement Account, which is typically before-tax, unless a Roth IRA.
An insurance product typically designed to pay out a steady stream of income, either beginning now (immediate) or at some point in the future (deferred). Annuities are extremely complex to analyze and understand. They often come with high operating fees and surrender charges, as well as big commissions to the selling broker. We consider them to be insurance products rather than investments.
The CERTIFIED FINANCIAL PLANNERTM designation is the most distinguished in the financial planning field. The certification process includes five exams covering Insurance, Investments, Taxes, Retirement Planning and Estate Planning, as well as a comprehensive final exam. The typical duration of study is three years. For more information, see Our Credentials.
Exist in an advisory relationship where one party’s interests aren’t necessarily aligned with the other party’s. Examples of conflicts of interest include:
- An advisor urges a client to swap one annuity for another, reaping a commission on the exchange.
- Creating needs for a client that can be filled by products the advisor happens to sell.
- Discouraging the purchase of securities that don’t pay the advisor a commission (index funds).
- Using in-house mutual funds, which typically have higher broker payouts, instead of external funds with lower expenses.
- Being paid a commission on the investments they recommend.
- Being paid by a mutual fund company to use their fund for the advisor’s clients.
The practice of trying to sell additional products to current customers in the hopes of making the customer more reliant on the company and less likely to leave for a competitor.
A financial institution which holds and safeguards an individual’s stocks, bonds and other financial assets. They collect dividend income and interest payments as well as facilitate settlement of purchases and sales. Having an independent third party custodian helps to ensure your assets won’t be absconded by your advisor.
A discretionary account is an investment account in which the client has given the advisor the authority to carry out transactions in their best interest and according to predetermined goals and objectives.
The weighted average life of a Fixed Income security calculated in today’s dollars. Bonds that pay interest will have a duration shorter than their maturity date since the investor is receiving income throughout the life of the bond. Duration is also a measure of a bond’s sensitivity to changes in interest rates.
Another name for stocks. A share of stock represents an ownership interest in a business. Equities are one of the three most common asset classes, along with Fixed Income and cash.
Common estate planning tools include: wills, financial powers of attorney, healthcare powers of attorney, living trusts, and charitable giving strategies. This process largely determines how your assets will be distributed after your death.
Compensated by commissions and a management fee based on assets under management. Fee-Based Advisors are held to the Fiduciary Standard when offering advice, but not when selling products. The result is that they don’t have to work in their client’s best interests at all times. “Fee-based” is a term invented by stockbrokers for stockbrokers.
An advisor whose sole compensation is the management fee paid to them by their clients, typically a percentage of the assets managed. Held to a Fiduciary Standard at all times, they are required to always act in their client’s best interests. Pittenger & Anderson is a fee-only advisor.
The highest standard of care in the investment world. A fiduciary standard legally requires an advisor to act in their client’s best interests. The word fiduciary comes from the Latin words for faith and trust. P&A is held to a fiduciary standard and acts in our client’s best interests at all times.
Someone who supports, promotes and defends the interests of another in financial matters. No Conflicts of Interest and being held to a Fiduciary Standard should be requirements of a financial advocate.
A process that analyzes income, expenses, assets and liabilities, and projects them over the life of the client. Assumptions are made for growth rates as well as inflation rates. A financial plan can help a client chart a path to realize their financial and life goals.
Another name for bonds. Bonds pay a fixed rate of interest (income), usually semiannually, until the bond’s maturity date. Bonds are issued by the U.S. Treasury, states, local municipalities, corporations, foreign countries, and more. Think of a bond as a loan between you and the issuer. You loan the issuer money in exchange for periodic interest payments and a return of your original investment (principal) at maturity.
Not affiliated with, or a subsidiary of, another firm. No revenue-sharing agreement or other relationship that may cloud an advisor’s judgment. P&A is completely independent.
The ability to convert an investment into cash quickly with minimal loss of value or penalty. The most liquid assets are cash, savings and checking accounts, and money market accounts. We consider stocks, bonds, and mutual funds to be liquid under normal market conditions. Real estate and many annuities are typically illiquid.
Mutual funds that can be bought without a sales load or commission. Studies generally show that no-load funds outperform funds with Sales Loads (see below). Why pay a broker/advisor a 6% commission to buy you a mutual fund when you don’t have to?
An advisor who is registered with the SEC or their state securities agency, who manages the investments of others in exchange for a percentage fee on those assets. An RIA must adhere to the fiduciary standard as set forth in the Investment Advisors Act of 1940. (Some advisors are dually-registered as both stockbrokers and investment advisors. These people are generally referred to as Fee-Based Advisors.)
Not to be confused with Roth IRAs (see below). Retirement Accounts come in many forms, including IRAs, 401(k)s, and 403(b)s. Retirement Accounts are pre-tax, meaning assets grow tax-deferred. When withdrawals do occur, they are taxed at ordinary income rates. These accounts typically have a 10% early withdrawal penalty if the owner is less than 59.5 years old.
These differ from other Retirement Accounts in that contributions are made with after-tax money. Distributions, when made, are tax-free. An existing retirement account can be converted to a Roth IRA, with the tax due paid up front in exchange for tax-free distributions later in life. Holding periods do apply under certain circumstances. Another difference is that Roth IRAs do not have Required Minimum Distributions (RMDs).
A commission paid to the Transactional Advisor by the mutual fund company for investing a client’s money in their fund. Typically 5.75% up front or 2% when the fund is sold. If you give your Stockbroker $250,000 to invest in a fund with a 5.75% front load, they will keep $14,375 as a commission for themselves and invest the remaining 235,625. Back-end or deferred sales loads take effect when mutual funds are sold.
The Securities and Exchange Commission is a government agency created by Congress to regulate the securities market and protect investors. Registered Investment Advisors are regulated by the SEC.
A way for P&A clients to access their accounts online via the Charles Schwab website.
Now trying to earn the title “Fee-Based” Advisor, a stockbroker derives at least part of their compensation from commissions, transaction fees, and Sales Loads based on the products they employ in client accounts. They are not held to the Fiduciary Standard when selling securities and therefore do not need to act in their client’s best interests. See also Fee-Based Advisor.
Whether by divorce or the death of a spouse, someone who is confronted with the prospect of dealing with financial decisions on their own.
The standard of care that Stockbrokers are held to. It states that a security or investment strategy must be “appropriate” or “suitable” based on a client’s investment goals and financial situation. Unfortunately, an investment may be suitable for a client, but not in their best interests. In other words, better products might be available than the one being proposed.
Stockbrokers, Fee-Based Advisors, insurance salesmen, bank-based brokers…anyone compensated at least partially by commission or transaction fee for selling their clients stocks, bonds, mutual funds, insurance policies, annuities, etc.
Open, public, accessible, easy to understand, and not buried in the fine print.