The stock market, like life itself, has been a roller coaster over the past few years. We've seen stocks rise to record highs, only to tumble down due to various factors such as the pandemic, inflation, or the Federal Reserve's interest rate hikes. And just when it seemed like things were settling down, we witnessed another bout of market volatility as inflation fears resurfaced.
Given the unpredictable nature of the market, it's natural for the average investor to feel overwhelmed. The question then arises - What should the average investor do to navigate these turbulent times?
Many experts suggest a simple solution: Find a registered investment adviser (RIA) that fits your financial profile. RIAs are companies that have a fiduciary duty to always act in their client's best interests. They charge fees rather than sales commissions and employ licensed investment adviser representatives (IARs) who provide financial advice taking a holistic approach to their clients' financial lives.
In contrast, other financial firms, such as broker-dealers, earn commissions from selling financial products and are only required to provide suitable advice. This often leads them to sell more expensive products that may not align with the client's long-term goals.
To assist in the search for an adviser, USA TODAY has partnered with market research firm Statista to rank the top 500 RIAs based on the growth of their assets under management (AUM) and client and peer recommendations. The ranking also includes separate groupings based on the amount of assets overseen by RIAs, allowing readers to compare firms in similar size classes.
With over 32,600 RIA firms managing approximately $115 trillion in assets, the task of finding the right adviser may seem daunting. However, there are key factors to consider. Smaller companies often provide a more personalized service, while larger firms may offer lower fees and specialized services due to their resources and volume-based discounts. Additionally, the location of the firm can also play a role in the decision-making process.
The top-ranked RIA company, Westfuller Advisors, based in New York City, showcased impressive growth in assets, increasing by 58% in a year and 69% over five years. Align Impact, based in Santa Monica, California, claimed the second spot with its assets more than doubling in a year. Cary Street Partners, located in Richmond, Virginia, received numerous recommendations from clients and peers, securing its place on the list.
RIAs serve a crucial purpose, especially during times of market volatility. When uncertainty strikes, having professional advice can be invaluable. Gail Bernstein, general counsel of the Investment Adviser Association (IAA), emphasizes the importance of guidance during such periods, stating, "There's a lot of hand-holding."
Another notable trend witnessed in recent years is the increasing demand for RIAs from individuals who had previously managed their own investments. Eileen Stevens, a wealth adviser at Corient Private Wealth in New York City, reveals that many such individuals find it challenging and intimidating to navigate the market independently.
While some clients seek an RIA solely for investment portfolio management, most look for comprehensive financial services that encompass retirement planning, estate and tax planning, bill payment, and even college savings roadmaps. Taking a holistic approach not only maximizes investment returns but also helps individuals map out a life strategy that aligns with their long-term goals.
During market downturns, panic may drive some investors to impulsively sell their stocks. Investment advisers often play a pivotal role in these situations, providing reassurance and advising clients to hold steady. Understanding the individual's financial circumstances, such as upcoming college payments, advisers can help clients make informed decisions.
When it comes to fees, RIAs typically charge an annual percentage of the assets they manage, usually around 1%. This fee covers the adviser's oversight throughout the year, including buying and selling securities based on the client's overall goals. While RIAs may require minimum investments, custodians such as banks or broker-dealers typically hold the client's cash.
RIAs also offer various fee structures, including fixed annual fees irrespective of the investment amount, flat fees for one-time financial planning, or hourly fees.
Furthermore, many RIAs specialize in specific market niches, catering to the unique needs of their clients. Athletes, restaurant owners, divorcees, medical professionals, and even Generation Z members all require tailored financial advice. The niche expertise possessed by RIAs allows them to address the specific challenges faced by these individuals.
Interestingly, a growing number of individuals in their 20s are seeking financial advice. These individuals, including tech or hedge fund executives who accumulate wealth early in their careers, are often in search of assistance in striking a work-life balance that allows them to enjoy their savings and experiences. Many of them also prioritize investments that align with environmental, social, and governance goals.
While the popularity of robo-advisers has surged among young investors, it's crucial to note that if they are RIAs, they still have a fiduciary duty to serve the client's best interest.
In conclusion, the stock market's unpredictable nature calls for professional guidance to navigate the ups and downs successfully. RIAs provide a valuable service in times of volatility, offering comprehensive financial advice that goes beyond investment portfolio management. By choosing the right RIA, individuals can optimize their investment returns, map out life strategies, and gain peace of mind during market turbulence.