Page 8 - Miami Vol 6 No 1

Wealth Management
Selecting an Investment Company
By Gene C. Sulzberger
From the casual observer’s perspec- tive, U.S. investment management rms may all look alike. However, there are important di erences
that investment consumers should be aware of when selecting an investment rm.
e three common types of investment institutions serving individuals with in- vestable assets in the United States are bro- ker/dealers (BD), registered investment advisory rms (RIA) and trust companies. Within these institutions, one would be working with a registered representative (RR) at a broker/dealer, an investment ad- visor representative (IAR) at an RIA, or a trust o cer at a trust company.
Where a client’s assets are custodied is an important question that needs to be part of any conversation with an invest- ment rm. Custody provides an investor a place to store assets with little risk. As- sets in custody are protected by the SEC Customer Protection Rule – meaning that, even if the custodian or the investment rm fail, investors’ assets remain secure
and separate from the custodian or invest- ment rm’s own assets. Custodial institu- tions normally charge custodial fees for their services.
e larger trust companies and broker- age rms usually have their own custody divisions for safekeeping of their invest- ment clients’ assets, or they may use third- party providers. Generally, RIAs custody the assets of their clients with large, third- party national custodians, such as Persh- ing, Schwab and Fidelity. Understanding the custody environment of the invest- ment rm one chooses and the costs for this service are important. e third-party custodial relationship your investment rm has is a check and balance highly recommended in light of publicized in- vestment frauds of the past few years and helps protect against fraud.
Understanding the investment prod- uct options of the investment rm is also highly valuable. A number of sizeable trust companies are focused on their own proprietary investment products. Some of these funds perform well, whereas other funds may not. Reviewing the prospect uses of these proprietary funds is a task most people do not like to perform, but it is something I recommend. Understand the performance of each proprietary fund against the benchmark for that fund to see if the fund is beating or underperforming the benchmark.
BDs and RIAs typically have a larger pool of investment options to work with. Clients should understand the choices they have and from which
their investment rm has to choose. For example, is there
a large selection
of actively managed and indexed funds that the rm works with, or restricted to just a few funds? Can clients purchase in- dividual securities? What kinds of alter- native investments can the client invest in and how does the rm exercise due dili- gence on these funds?
How the investment rm and advisor are compensated is another crucial ques- tion to ask. RIAs and trust companies gen- erally receive their compensation through a fee, typically a percentage fee of the as- sets under management. BDs and their RRs are typically compensated through commissions, front or back end loads and/ or fees. BDs may depend on transactions for a large part of their income, but can also continue to receive fees from mutual funds sold. Investors should make sure they understand the di erent types and levels of fees that are being charged and whether this can in uence how the port- folio is managed or structured.
is leads to, in my opinion, the most important distinction between each type of investment rm – the legal responsibil- ity the rm and the advisor owe the client. RIAs and their o cers have duciary rela- tionships with their clients as required by the Investment Advisors Act
of 1940. ey can be regu- lated by the SEC or state securities regulators de- pending on their size. Trust o cers and
Gene C. Sulzberger is president of Sulzberger Capi- tal Advisors, a registered investment advisor in Mi- ami. He works with U.S. and international clients, helping them meet their wealth management goals. Gene is a CERTIFIED FINANCIAL PLANNERTM and a registered trust and estate practitioner (TEP). He is also an attorney who previously practiced law in the area of trust and estate planning. He has over 20 years of experience in nancial services and nancial planning. Gene can be reached at (305) 573-4900 or [email protected].
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