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Success in business comes from exertions, determination and effective implementation. However, to reap the most advantages from their success, entrepreneurs need financial strategies based on impartial advice. Unfortunately, the conflicts of interest inherent in traditional wealth management models can distort even the best-laid plans, undermining efforts to achieve personal and business goals.
Conflict-free financial advice – in which advisors put the interests of their clients ahead of the interests of employers – leads to effective decision-making and consistent implementation. This is especially essential for business owners who need to quickly respond to market changes. Understanding how to provide unbiased guidance is critical to maintaining growth and achieving long-term financial stability.
The impact of independent financial advice
A gathering I had about 20 years ago crystallized my view on these matters. I sat down with a famous tech entrepreneur shortly after my then-employer, a large investment bank, helped him pull off a stunning IPO. My goal was to review his family’s funds and position him as a wealth management client – a high-stakes endeavor given his position and the potential for a lucrative, multi-generational relationship between my firm and his family.
From my perspective, the meeting was going well when the entrepreneur turned to me and asked, “Why should I pay retail prices when the money I’m bringing to the table makes me an institutional-level customer?” Before I knew it, he added, “Why should I get financial advice from a place that makes the products I use to implement my financial plans?”
The tech mogul’s questions forced me to consider what I now know for sure: Some entrepreneurs view traditional financial advice models as a algorithm that favor the home. Over time, this insight inspired me to rethink how financial advice must be delivered to business owners. Below is an expansion of this time-honed approach to define latest and fairer principles of wealth management, along with suggestions on how business builders can provide financial advice that really meets their needs.
Contrasting brokerage and RIA models
The traditional agency model may create conflicts of interest. For example, advisors’ investment recommendations could also be influenced by undisclosed incentives that encourage them to favor a firm’s own products over third-party offerings. Additionally, broker advisors could also be under pressure to “up-sell” internal banking or related insurance products to clients. In this setting you are at all times being sold.
In contrast, entrepreneurial advisors with their very own independent Registered Investment Advisors (RIAs) – fiduciary entities regulated by the Securities and Exchange Commission – are required to put their clients’ needs first and are not subject to pressure to promote specific products or solutions. Unlike their brokerage counterparts, who are trained to focus on short-term, sales-oriented results, RIA owners have no incentive to favor one investment manager over one other. Their long-term success depends on their credibility, confirmed over time and progressively. This encourages independent RIAs to provide access to a wide selection of investment products, enabling them to make recommendations tailored to each client’s needs, goals and risk appetite.
Reducing conflicts of interest and promoting impartial, client-focused advice inside a framework of transparency and flexibility is particularly useful for entrepreneurs who need unfiltered information to make informed decisions.
Key issues when selecting an advisor
Result? Entrepreneurs looking for effective financial advice should at least:
- Choose an advisor who operates to a fiduciary standard, which implies they are legally obligated to act in your best interests – and ask them to put it in writing!
- Ask about open investment options. If an advisor cannot offer a wide selection of investment products apart from those associated with his or her company, this must be difficult for the business owner.
Selecting an independent RIA-based advisor has the added advantage of ensuring that client assets are held by an unaffiliated “custodian” – the financial institution responsible for safekeeping and safeguarding the client’s securities and other assets managed by the RIA. Notable custodians in the independent RIA space include Charles Schwab and Fidelity Investments.
Another, perhaps surprising, advantage of working with an RIA-based advisor comes on the technology front. Recent advances in fintech services and RIA platforms have improved the playing field for independent advisors for large corporations, and independents have access to these higher tools than Wall Street brokerages. Technological advances enable scalable and flexible financial strategies that meet the complex needs of entrepreneurs.
Additional benefits of RIA platforms include:
- Scalability: Financial strategies may be seamlessly adapted as what you are promoting grows.
- Efficiency: Improved technology integration ensures faster service and more accurate investment tracking.
- Flexibility: Advisors can tailor their services to your unique needs, without the limitations of proprietary product offerings.
The independent RIA model fosters a competitive, revolutionary environment that advantages entrepreneurs. By ensuring that advisors act in the best interests of the client, this model delivers more selection, higher technology and improved services.
Taking actions to ensure financial success
Providing the right financial advice is crucial for entrepreneurs who often juggle personal and business financial goals. To achieve this, start by assessing your current consulting relationship. Assess whether your advisor is compliant with fiduciary standards and whether your assets are held by an independent custodian. Then search independent OSRs to find advisors offering transparent, flexible and tailored financial strategies. Finally, make sure your advisor is using cutting-edge technology to effectively manage your portfolio and support your decisions.
By following the steps below, you possibly can build a financial advisory relationship that aligns with your interests, providing the expertise you wish to navigate complex financial challenges. This proactive approach ensures that your financial strategies can adapt to your changing needs, ultimately supporting your long-term success. Tailoring financial advice to your personal and business goals is essential to achieving financial stability and growth in an ever-changing market environment.