SC, I agree with the essential content of your thoughts except that in my opinion it's a mistake and confusing to use RIA/IAR in the same phrase with regard to what they may or may not do or what relationships they may or may not have.
As you rightly point out there is HUGE difference in Adviser and Advisor. In no way are they legally or practically the same thing. Congress wrote the Act using the word "Adviser." That's one reason using the term can be restricted.
The reason that the overwhelming majority of RIA's (Adviser) do not use IMO
's is simply because most Advisors who eventually form RIAdviser firms grow up in the Securities Industry being regulated by a particular regulatory compliance scheme that does not include the state's Dept of Insurance.
Most Advisors usually take the path coming from the Wirehouse world or B/D where they are Registered Reps holding a FINRA Series 7 & State "Blue Sky" Series 63 and/or NASAA 65/66. And they are very rarely exposed to any Insurance products other than Variable Annuities.
So, they have no idea what an IMO
is. This includes the vast majority of RIAdviser firms in existence. This would also include any B/D owed by an Insurance Company, they most of all would not use an IMO
or run the risk being caught "selling away."
When RIAdviser firms have a client who has a need for Insurance in some form they will either a) use their affiliated Bank's Insurance subsidiary or b) the will call the Insurance Broker with whom they have a relationship in one form or another c) use the Adviser they have registered with the SEC like an Insurance B/D, which are become quite rare these days with all the M&A going on.
I think the confusion must largely lie from the point of view one is associated with the whole thing. On this board we are all at least Insurance agents, I presume, and not necessarily Securities registered. So I think to large extent our only exposure to RIAdvisers are to those that are Insurance friendly and have associated IAR's (Advisor) so it's easy to believe they all operate similarly. However, not everyone is regulated by both FINRA/SEC and the state's DOI.
Granted we're all aware of the some RIAdviser firms, relatively very few in terms of the amount of RIAdvisers out there, that are formed who are Insurance friendly and allow non W-2 Investment Advisor Reps to associate with them.
Such as the big Indy B/D's who would also have a separate RIAdviser entity registered with the SEC, of course they may or may happen to use an IMO
depending on their set up. If they do much business at all they're likely to have a direct connection to the Carrier's distribution channel. But certainly, some do allow their Investment Advisor Reps to use the IMO
’s of their choice as OBA. But they themselves would not.
The vast majority of RIAdvisers in existence are only regulated by FINRA/SEC so they do not know, or do not use, or would they even care what an IMO
is because they have no reason to.
Most RIAdvisors are solely focused on increasing their AUM, thereby increasing their fee income. To place someone in an insurance product that does not produce fees is counterproductive to their whole mission.
In fact, the majority of RIAdvisers as well as CPA's believe only in Health, Term, DI and P&C Insurance. But when Insurance is needed they leave all of that lowly business to the mere Insurance Agent down the street somewhere. Most are hard and fast believers in "Buy Term and Invest the Rest." Most RIAdvisers don't hold Insurance or its agents in high regard.
And to go back a few posts further somewhere, they would never be caught dead recommending FIAnnuities. After stripping out all the cash flows & participation rate discounting you'll get some finance nerd that suddenly finds out the IRR is only 2.5%!!
"OH MY GOD!!! Where's the rest of it? It goes in your pocket as commission, doesn't it?!?! You Insurance Agents are CROOKS!!" They'll always say.
That's why I made the crack about them using the actual Term Structure as a Fixed Income replacement.
Personally, I believe the some Fixed Indexed Annuities products are perfectly fine to use in the right situation for the Income portion in a mixed portfolio to push the mean/variance "Efficient Frontier" up and in.
Of course, many on the Board already know this but everything is a tool. It can be a challenge overcoming the Dogma of the “BTIR” or the anti-Permanent Insurance Zealots at times.
But when you actually do you can count on a referral partner for life. Learn to speak their language in Excel preferably. The Multi-Billion $USD RIAdvisers out there will have very smart Analysts that they trust. Win those Brainiacs over and the referrals will flow.
Originally Posted by scagnt83
Let me clear a few things up here.
It is a fallacy that "anyone can call themselves a Financial Adviser"
. In most states that term is regulated.
States have their own laws about what is and isnt a "Financial Adviser". Usually similar terms such as "Financial Planner" "Financial Advisor" are included in the same regs.
In many states, SC included, you better have a Series 65/66 to market yourself as a "Financial Adviser". If not, you are risking your career and a whole bunch of fines.
The exception is if you have a qualifying designation, usually CFP/CFHC/CFA are included. But thats even more state specific. And most states still require them to register with the state as a IAR even with the designation (you just dont have to have a 65/66).
IARs most definitely use FIAs. They also use VAs and FAs.
There are Zero Comp FIAs out there now (Great American) that are placed under the RIA as part of their AUM to include in the Wrap Fee.
This is the same as the RIA approved VAs from Jackson/Jefferson/Pru/etc.
They can also run Insurance Business separate from their RIA business. Even take full commissions on it. Of course, it has to be documented and disclosed to the client. But it can be part of the overall recommendation and financial plan they create as an IAR.
IARs can and do utilize FIAs. I personally know a good many who do. Used to work with a bunch of them. Most use VAs more than FIAs. But many out there use both.
Whats different is some RIAs have an "approved" IMO
that their IARs must use. But some dont and those IARs are free to use who they wish.
Of course if its a no comp FIA and part of AUM, then it would have to be approved by the RIA and the RIA would have a selling agreement with a specific IMO
Some of the really big RIAs (like LPL) have their own IMOs that they own & operate. So it all kind of depends. But an IMO
must be used at some level above the agent, assuming its not a direct carrier.
Then there are plenty of stupid IARs out there. I know guys who use FIAs as a Treasury alternative all the time. Even an alternative to AAAs.
The risk is between a TBond and AAAs. Its return is higher than a TBond and often the AAAs too. Then there are the other benefits not provided by Bonds.
I know an IMO
that makes their living from providing FIAs and FAs to Financial Advisers and Stock Brokers. Their main pitch is using it as a Bond alternative.
You can count me in as one of the stupid ones too. Because Ive sold many as Bond alternatives. If liquidity is not an issue, its a no-brainer for the client.
Not nit-picking at all
Adviser and Advisor are different and distinct. If they were no difference there would be no restrictions on the usage of the terms...among many other things. The Industry has done a great job in confusion only the Customers but their Agents as well.
(see my other post on where I think the confusion or lack of awareness comes from)
Plus, I do enjoy the board but I don't have time or the interest in looking up other people posts to find out the context of what they may have meant.
Originally Posted by DHK