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My Clients’ Accounts are Custodied at @CharlesSchwab and TD Ameritrade @TDA4Advisors

By May 3, 2014October 10th, 2016Financial Advisors

In my last blog post, I told you that I thought the best way for a financial advisor to work was as a fiduciary to his or her clients. I am fee-only and I don’t sell any products and I think that is the best way to work as a financial advisor, but it clearly isn’t the only way. You don’t need to be fee-only to be a fiduciary.

I am a Registered Investment Advisor and am licensed as such. I don’t work for a Broker-Dealer or an Insurance company, and therefore don’t have a brokerage license or any insurance licenses, and I don’t have any affiliated Broker/Dealer or Insurance company that I am a broker or an agent of. Most of the guys I talk to who work in the financial community really can’t wrap their heads around that idea.

I don’t “clear” through any brokers. I have business relationships with Charles Schwab and TD Ameritrade, and all of my clients accounts are at either of those firms. I manage all of my clients’ accounts at those firms with discretion through a Limited Power of Attorney that gives me the ability to make trades and debit my fees.

When I say “with discretion” I don’t mean I can just do whatever the heck I want. Clients all have an Investment Policy Statement and we discuss how I will manage their accounts before I start doing so. Having discretion means when I make a trade to re-balance or invest for a client, I just do it. I don’t ask permission or discuss it with the client first.

Having the business relationships with Schwab and TD doesn’t mean I have any kind of broker, agent or employee status with either or both firms. They don’t pay me anything and I don’t pay them anything. We all mutually benefit because I bring a steady stream of clients to them and they have institutional account platforms that make it easier for me to manage my clients’ accounts.

Both firms’ account applications have sections for clients to initial to give me that Limited Power of Attorney. Some advisors vote proxies for their clients, but I don’t do that. Otherwise, the account applications are similar to those they and other brokerage firms use for their retail customers.

Once clients’ accounts are opened, clients get trade confirmations and account statements from Schwab or TD, the same as if they opened the accounts themselves. On each statement or trade confirm it does say that their independent investment advisor is Yardley Wealth Management, which is my company.

Schwab and TD mostly make money from my clients by charging a nominal amount for mutual fund transactions. I primarily use mutual funds, but over the years have also placed trades for stocks, bonds, and exchange-traded funds, among other things, and they have made and will continue to make a small amount of money off of each transaction.

As a fee-only investment advisor, I don’t ever make any money off of my clients’ transactions. Again, this is something people have a hard time understanding. I charge fees quarterly in each client’s account based on the fee they pay and the amount of money that I manage for them. It doesn’t matter what I buy or don’t buy in their account, or what is ultimately in it.

I calculate the fee that I debit each quarter by multiplying the amount of money I manage for the client, by the fee schedule the client pays, by the amount of time that I managed the account for. For most clients I pro-rate the fee among their various accounts, but if they prefer I debit one account instead, I do that for them.

The reason I prefer not to sell products is that it is easier to avoid conflicts of interest if they don’t exist for you in the first place. I don’t have any incentive to place my clients in higher-priced or higher-commissioned products, because I don’t make any money from the transactions. I don’t make any more or less money depending on the products they buy.

My incentive is to make their accounts grow because I make more money when their accounts are worth more. Of course, I make less money when their accounts are worth less, so I am cognizant of balancing those risk/reward tradeoffs for each client based on their own individual situation and goals.

Next time I will discuss the huge difference between fee-only and fee-based. It always seems that only the fee-only people understand that difference. Let’s try to change that.



Michael Garry

Author Michael Garry

Michael Garry is a CERTIFIED FINANCIAL PLANNERâ„¢ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

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