Architecture is one area that makes Chicago a world-class city. One lasting principle of architecture & design that many are familiar with is "Form follows function." In other words, as Wikipedia puts it, " that the shape of a building or object should be primarily based upon its intended function or purpose."
So, let's talk about this mantra in the context of a four-letter "F" word - fees- as it pertains to both brokerage accounts and advisory relationships.
Brokerage Accounts
A broker is an entity that arranges a transaction between parties and receives a commission for the transaction. In this scenario, brokers are often motivated to encourage a transaction, as long as it is "suitable." However, a broker's obligation is primarily to their employer . Brokers also have lesser requirements for disclosing conflicts of interest that investment advisors. You may or may not know the costs of a transaction beforehand. Some firms offer fixed rate transactions (ex., $15 per trade), others may charge based on the number of shares and liquidity of the investment. In other cases, costs are layered inside the expense ratio of the investment product.
Advisory Relationships
Investment advisors, by definition, provide advice. They have a fiduciary responsibility; in other words, their primary obligation is to the client, and they must put the client's interest in front of their own. In this type of relationship, you may be charged a retainer, a flat fee for planning, or a percentage of the account. The fee structure is agreed to up front, before services are provided, and in writing. Any potential conflicts of interests must be disclosed.
In short, how you pay your representative may depend on what you are paying them for. Ask yourself a few questions in advance of engaging in either type of relationship.
- Do you have the time, desire, or experience to manage a portfolio by yourself?
- Do you just want help with transactions, or are you looking for advice?
- Are you comfortable working with someone whose obligation is to their employer rather than to you as a client?
- Do you want to know your cost structure upfront, or would you rather pay-as-you-go?
If you would like to discuss your situation more in depth, click on "Our Website" above and go to the Appointments section to schedule a phone consultation.