Planner versus Coach
Investment Coach vs. Broker / Planner
The Differences Are Striking! You Have A Choice!
 
 
We often get the question, “What is the difference between an "investment coach" or "independent fee only registered investment advisor" and a "retail broker" or "financial planner?"

An investment coach is an “independent fee only registered investment advisor” that provides their clients ongoing education, the discipline to stay with prudent diversified investment strategies, helps you measure risk to choose the appropriate portfolio, and makes sure your portfolio is rebalanced periodically to keep your risk parameters in line. It’s a long definition, so that’s why we simplify it to….”Investment Coach.”

Most investors are unaware of the differences! Our clients know the difference. Do you know the difference? Check out this video to see the major issues you have to deal with as an investor if you work with a broker. Watch and prepare to be shocked!

“A coach is someone who sometimes must tell you what you don’t want to hear, who has you see what you sometimes can’t see, so you can become the best you can be."
Tom Landry, football coach



Past performance is no guarantee of future results.

All investing involves risks and costs and clients may experience a loss. Your advisor/coach can provide you with more information about the risks and costs associated with specific programs/investments. Additional information can be obtained from the Matson Money website as well as mutual fund prospectuses and other reports related to your investments.

The videos are based on the views of Matson Money, Inc, and/or Royal American Financial Advisors, LLC. Other persons may analyze investments and approach investing from a different perspective from that reflected in the videos. Nothing included herein is intended to infer that the approach to investing espoused in these videos will assure any particular results. No current or prospective client should assume that future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in these videos, will be profitable or equal to corresponding indicated performance levels.

Actual results of accounts/assets under Matson Money management and/or Royal American Financial Advisors, LLC may differ materially from results shown herein because of differences in the account inception dates, account restrictions and asset acquisition dates. Also, it is not possible for any account performance to precisely match an index since indexes are unmanaged and investors cannot invest directly in any index. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges, or the deduction of advisory/investment management fees, the incurrence of which would have the effect of decreasing historical performance results.

Investors should consult their individual advisor/coach before acting on any subject matter in these videos.

"A Teacher Affects eternity. He can never tell where his influence stops."
Henry Brooks Adams, writer

Retail Brokers / Financial Advisors vs. Independent Fee Only Advisors
There are significant differences you must understand - You have a choice!
 
 I want to start out by saying that most retail brokers are nice, well meaning people. A vast majority are doing the best they can with the system they are given. Unfortunately, for brokers (and their unsuspecting clients), they are trapped in a system of unavoidable conflicts of interest that do not have to be disclosed, and that most investors are unaware of. Investors must become aware and keep up their guard when dealing with retail brokers.
 

The Broker Name Game 


 And, don’t be fooled by fancy titles of financial planner, senior advisor, financial advisor,...brokers can call themselves many different names, but they are still brokers, or a better name…salespeople. These names are not to be confused with an “independent fee only registered investment advisor.” It is important to keep in mind that the regulators have not done a good job of policing the misleading titles that brokers often use. This means you are on your own in determining whether the financial professional you are working with, really works for you.


Want to know if you have hired a broker? Ask one simple question. Are you a “registered representative?” This is the common name all brokers have, but rarely publicize. If they are a “registered representative” they work for the brokerage firm, not for you. Regardless of the name brokers choose, they are not “independent.” All registered representatives work for the firm, not for the investor.

 
The Broker Account Type Game
 
 Most investors don't realize this, but through brokers you can typically get two types of accounts:
          1.   Classic Brokerage Account
          2.   Investment Advisory Account

Classic Brokerage Account: In a classic brokerage account, the broker is an agent for the firm. The broker’s first duty is to the firm, not to you….even though you are the customer. Any investment advice is incidental to his main business of generating sales and commissions for the firm. There are often quotas or minimums to continue working for the firm. There are often higher payouts for brokers that generate more commissions. None of this has to be disclosed to the unsuspecting investor.

In a classic brokerage account, the broker is not held to the standards of the Investment Advisors Act of 1940, a fiduciary standard. The broker is not required to disclose fees, conflicts of interest, disciplinary actions, and because of his duty to the firm, may not be able to put your interests first. You do not get the protection of the Investment Advisors Act of 1940 with a classic brokerage account.

Investor Beware of Undisclosed Conflicts!

 
Classic Brokerage Accounts Undisclosed Potential Conflicts of Interest:
          Broker is often better compensated for generating activity.
          Broker is often better compensated for selling certain financial products.
          Broker is limited to the products approved by the firm.
          The products approved by the firm sometimes pay the firm to get on an approved or preferred list.
          Broker is paid by the firm, not by you.
          Compensation is up to you to find, often buried in hard to read disclosure documents.

Investment Advisory Account: Yes, brokers in some cases, when they are dually registered, can also open an investment advisory account for investors, similar to what an “independent fee only registered investment advisor” can do for their clients. In this type of account, the broker is held to the standards of the Investment Advisors Act of 1940, a fiduciary standard. However, there are still drawbacks to this model as well.

          Broker is still limited to the products approved by the firm.
          Broker is still better compensated for selling certain financial products.
          The products approved by the firm sometimes pay the firm to get on an approved or preferred list.
          Since broker is “dually” registered as a broker and as an investment advisor, he/she can “switch hats” with little disclosure and often becomes a
           salesperson for the firm in midstream, with the investor unaware.
 
The Changing Hat Game
 
When working with retail brokers, investors must be aware of the “changing hat game.” This can happen when a broker is dually registered as a “registered representative” and registered as an “investment advisor.” It is important to keep in mind that the regulators have done a poor job of protecting the investors and have not done a good job of policing the changing hat game. At anytime, with little disclosure, acting as an “investment advisor”, he/she can switch hats and become a salesperson, or agent for the firm. Currently, this is perfectly legal. Due to gaps in the law, investors have to beware of the “bait and switch” when working with brokers. Just when you think they must work in your best interests, they may not be.
 
Independent Fee Only Registered Investment Advisor: No Changing Hats….Ever!
          Not dually registered as a registered representative and investment advisor.
          Are legally required to act as fiduciaries to their clients at all times.
          Are legally required to put their client’s interests first at all times.
          Must disclose all fees.
          Must disclose disciplinary actions.
          Must disclose conflicts of interests (yes, some conflicts are unavoidable).
          Works directly for the client.
          Is paid directly by the client.
 
The Financial Planning Game
 
Financial planning often is used by brokers as a disguise to sell high-commission, inferior financial products that may not be in your best interest. The financial plan is not for you (the client), rather it’s a tool for the planner to sell product.  Be aware that the planner can manipulate the numbers in software programs with just a few small adjustments, and skew the results in his favor to help sell product.

If you are dealing with an order taker for financial products, or with someone that derives most of their earnings from commissions, or with someone that does not provide ongoing education to you the client, you are not working with a coach. You also want to work with someone that discloses all fees and commissions. When fees and commissions are hidden, abuse can take place and investors often pay more than they should.

There is a huge conflict of interest with commission-driven planning. Even planners, who have good intensions, might choose their own self-interests over yours for higher compensation. Some brokers and planners also push past performance or “hot” products because products with “hot performance” are easier to sell.

The financial brokerage industry also is in alliance with the media because of the huge amount spent on advertising. As investors search for the next great investing idea, they often turn to CNBC, Fox Business, Money Magazine, Forbes, Bloomberg, financial newsletters, or the internet. Then, when the hook is in, they got you…and you have to act on the new idea with transactions that put additional commissions in the broker’s pockets. Brokerage firms take their cut as you hop from one hyped up investment to another.

The most common result I see from the traditional commission-driven financial planning process is fear, anxiety, confusion, complexity, and a reduced ability to take action on your own behalf. A coach helps you wade through all of these very complex issues and maintain long-term discipline around the investing process. Ultimately, investing is a people problem, not necessarily a portfolio problem. Another thing that a coach will do is make independent recommendations. These are not based on commission, but based on doing what is in your best interest.

Coaches can also provide the discipline necessary to be a successful investor. There will be times in the future where your emotions will be tested. A coach can help keep you on the right track.
 
The THREE SIMPLE RULES of investing demand discipline
 
The commonly held rules of prudent investing are:
          Own Equities
(and reduce risk to the extent necessary for your tolerance by increasing exposure to high quality shorter term bonds around the world)

          Diversify
(Broad based diversification in free markets around the world, in asset classes with different correlations)

          Rebalance
(Rebalance when necessary: A forced sell high, buy low discipline to keep your risk in line)

As in any endeavor, there are certain accepted rules that can simplify our ability to achieve success. In the area of weight-loss, for example, the rules are straightforward:
 
Eat Less & Move More.
 
All of these rules sound simple enough. However, it isn’t knowing the rules that is hard; it’s consistently following them that challenges most people (in weight loss or investing). When people make investing decisions about the future based on track-record or emotions, without realizing it they wind up breaking these rules, thereby sabotaging their portfolio. This is where coaches are critically important. Whether it is for fitness, in investing, or any other areas of your lives, coaches are necessary to keep you on track. The best professionals in any field and the most successful people all have mentors or coaches.
 
If investing & dieting were easy, we would all be rich and skinny .
 
Just like implementing a diet plan, investing takes discipline, patience, and commitment. We all know what it takes to lose weight and be fit. Most of us, however, don’t have the self-discipline to follow the rules (eat right and exercise) on a consistent basis to get the results we dream of. Sometimes it takes a personal trainer or coach to get us on the right track and keep us doing what we need to do.

What does it take to have the discipline you need to become a serious and successful investor? A coach! Exactly the same as a personal trainer for your body and mind, an investor coach provides you with the tools and strategies you need to be a successful investor. The coach keeps you on the right track to achieve your goals.

A coach can help you make the prudent investing decisions you need to be successful for your lifetime:
          A good coach can help you measure how much volatility and risk in your portfolio is acceptable, so you can stay disciplined and get the average
           lifetime market returns available to the disciplined investor.
          A good coach helps you to distinguish prudent from imprudent risk.
          A good coach also aids you to truly understand and measure diversification in your portfolio.
          A good coach will provide you with continuing education on a weekly basis and teach you about prudent investor behavior and imprudent investor
           behavior to increase your chances for success.
          A good coach helps you to reduce overlapping assets in your portfolio.
          A good coach is someone that (on occasions) isn’t afraid to tell you the truth, or tell you something you may not want to hear. A coach will be 
           realistic…a salesman (broker) will tell you what you want to hear to make the sale, even if it’s not in your best interest. A coach sometimes helps
           you see what you sometimes can’t, so that you can become the best investor you can be.
          A good coach can help you minimize hidden fees and costly portfolio turnover.
          A good coach can help you to stay disciplined in your prudent investing process during your lifetime.
          A good coach will rebalance your portfolio to help keep your risk in line.
          A good coach will provide you with an investment policy statement to clarify responsibilities (for both the Advisor and the Client), and establish
           guidelines and standards for the prudent investment of your assets.
 
How to Check on a Broker or Advisor
 
Protect Your Money: Check Out Brokers and Investment Advisers
Federal or state securities laws require brokers, investment advisers, and their firms to be licensed or registered, and to make important information public. But it's up to you to find that information and use it to protect your investment dollars. The good news is that this information is easy to get, and one phone call or web search may save you from sending your money to a con artist, an unscrupulous financial professional, or a disreputable firm.

Brokers and Brokerage Firms
The Central Registration Depository (CRD) is a computerized database that contains information about most brokers, their representatives, and the firms they work for.
http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm 

Investment Advisers
To find out about an investment adviser and whether it is properly registered, read its registration form, called "Form ADV." Form ADV has two parts. Part 1 contains information about the adviser's business and whether the adviser has had problems with regulators or clients. Part 2 sets out the minimum requirements for a written disclosure statement, commonly referred to as the “brochure,” which advisers must provide to prospective clients initially and to existing clients annually. The brochure describes, in a narrative format, the adviser’s business practices, fees, conflicts of interest, and disciplinary information. Before you hire an investment adviser, always ask for and carefully read both parts of the Form ADV. You can view an adviser's most recent Form ADV online by visiting the Investment Adviser Public Disclosure (IAPD) website. You can also obtain copies of Form ADV for individual advisers and firms from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser.
http://www.adviserinfo.sec.gov
 
The Must Answer Questions
 
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