What is a Fiduciary? Do I need one?
While the concept of a fiduciary has existed for thousands of years, the root fiducia is Latin for trust, it is only in recent years that the term has found its way into lexicon of the investing public. After the Great Financial Crisis the shifting regulatory tides proposed and/or enacted operating mandates within the industry such as Reg BI (SEC) and the Fiduciary Rule (DOL). The hierarchal relationship where the client’s interests come first and the firm and adviser’s subordinate to those interests seem logical, but in fact is that has not always been the case and there are instances where prudence or suitability standards alone can be used as justification for a recommendation. Investors are best served when the advice they receive is not conflicted and it is aligned with their objectives and outcomes.
What is Fee Only?
When a financial planner or financial advisor is "fee only" it means that there is no compensation paid to the financial advisor, tied to how a client invests. Why should this be important to you? If you want unbiased advice, a fee only advisor is the way to go. A fee only financial advisor can minimize or eliminate conflicts of interest and can truly act as a fiduciary. A fiduciary is a legal term that in financial services, is used to describe financial advisors that are obligated to put the needs of their clients above their own. Having a fiduciary responsibility can manifest itself in many ways financially, such as the types of investments that are used in a portfolio. Fee-only financial planners get paid by you directly, where fee-based planners often also earn commissions on products they sell. Informed investors educate themselves as to which type of planner they are dealing with. While fee-only vs. fee-based is a small change, the recommendations made by each can vary widely.
Who is your custodian? What is their function?
Advisers and their clients require their assets are safely accounted for and segregated with a trusted financial institution. The custodian provides critical infrastructure for the advisory relationship. There are a number of large players that serve as custodians, several notable organizations are First Clearing, Pershing, National Financial Services and Charles Schwab . Breakwater Capital Group has opted to use Charles Schwab as their primary custodian. Schwab's focus on the independent advisor space goes back over 30 years. Breakwater reserves the right to use other custodians in the future, it is not uncommon for an independent registered investment adviser to have multiple custodians. To find out a little more about Schwab, click here.
How can we work together? What should I expect? What are my costs when I work with your firm?
Most clients will opt for an asset-based fee framework that covers the cost of both the investment management and financial planning services. A typical client with $1MM in assets under management would pay a fee of 1.25% (see Form ADV Part 2A for detailed fee schedule) or $12,500 annually. There may be other expenses associated with the investment vehicles or very modest ticket charges. Clients may engage with the firm on a discretionary basis, where the advisor acts on behalf of the client without the need for preclearance of any transactions or on a non-discretionary basis where prior to any trades being placed the client’s consent is required. The latter approach, due to additional time involved generally results in a higher expense. Planning only fees and point in time investment advice are available based on an hourly rate, subject to a minimum annual fee.
What other services does your firm provide?
The firms primary focus is on investment management and cash flow or goal based financial planning, but there are a number of disciplines which are critically important to creating a sound planning. The firm provides detailed education and guidance in such areas as tax and estate planning, insurance, business valuation and succession planning and retirement plan design, having cultivated strong relationships with subject matter experts we'll pull in those resources often at reduced costs to implement those strategies. Banking and lending are other areas where we can support clients often utilizing their balance sheet through pledged lines of credit, margin borrowing or mortgages.