Published On: May 20, 2020
Written by: Ben Atwater and Matt Malick
Quora.com says transparency means an organization cannot and does not hide or conceal anything. It means observers can freely and directly see what an organization is doing. It means there are no secrets and no lies.
Forbes.com says transparency fosters trust. Building happiness and engagement through transparency means updating clients regularly on strategy and current events.
Wikipedia.com says transparency is operating in a way easy for others to see what actions you perform. Transparency implies openness, communication, and accountability.
BusinessDictionary.com says transparency is a lack of hidden agendas or conditions, accompanied by the availability of full information required for collaboration, cooperation and collective decision making. It is an essential condition for a free and open exchange whereby the rules and reasons are fair and clear to all.
Recently, we have come across a few anecdotal examples of poor transparency (or worse) in our industry. These came in the form of hidden fees or commissions and phony investment promises (or sometimes both simultaneously).
The combination of a volatile investment environment and rock-bottom interest rates is a con man’s paradise. There has never been a better time for investors to be vigilant. Caveat emptor.
Remember, there is no such thing as a free lunch. In today’s environment, promises of low volatility and any kind of return are nothing more than salespeople applying window dressing to products. Because of the Federal Reserve’s efforts to suppress interest rates, truly safe and low-volatility investments offer little or no yield. This is an unavoidable fact, a financial principle equivalent to a law of physics.
Fees play into this game as well. In a low-yield environment, it is easier for salespeople disguised as financial advisors to hide fees inside of products. The fees you pay advisors should not only be fully disclosed, but easily seen on your statement. The scheme where consumers pay an advisor and then the advisor also gets kickbacks from investment products is one to avoid.
We believe our number one differentiator since starting our independent firm has been and remains transparency.
This begins with an investment philosophy that emphasizes individual stocks and bonds. In other words, you can look at your account statements and see exactly what you own. We never “outsource” investment management to a third party, so our clients avoid a second layer of fees. (Even worse, some advisors accept payment from the outside manager for “selecting” their product – a clear conflict of interest.)
We are 100% fee-only. The fees you pay us represent our sole source of revenue. We never accept commissions, payments from fund companies or finders’ fees from referral sources.
Our regular email updates, like this one, come directly from us. We do not subscribe to a service and put our name on the newsletters. Our essays represent our views and our strategies which we translate directly to how we manage money and provide planning for clients. This is a substantial differentiator. The smallest of firms, like ours, often purchase content to get their names in front of clients. The largest of firms have pieces that strategists write which are platitudes rarely translating to the actual clients and their accounts.
As a Registered Investment Advisor, we act (and are required to act) in a fiduciary capacity. That means we are legally required to put client interests before our own. Brokerage firms, those accepting commissions, are only held to a suitability standard. Hybrid firms, commission firms that have Registered Investment Advisor segments, can change hats throughout the day (even with the same client), acting in one hour as a fiduciary and another hour using the suitability standard. It is worth asking why an advisory firm needs to also have a broker dealer affiliation.
We are committed to our transparency, our independence and to putting the interests of our clients ahead of our own interests. Our promise to you is that we will continue to embrace radical transparency.
During this crisis, numerous clients have asked about sharing our messages. We truly appreciate the positive feedback and would encourage you to forward these notes to family, friends, and business associates. Given the current climate, we are open to adding additional recipients to our communications. If you know someone who would like to receive these essays directly, please let us know. Also, for more information on the business practices we describe above, visit our regulatory filing at https://www.atwatermalick.com/ria