What does it mean to work with an advisor in an advisory relationship?
Silver Grove is an investment advisor registered with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. As an investment advisor, the advisors at Silver Grove hold themselves to a fiduciary standard and, as such, is obligated to act in the best interests of clients and make full and fair disclosure of all material conflicts of interest. Silver Grove advisors offer a number of investment advisory programs and services.
Under its investment advisory programs and mutual fund asset allocation programs, Silver Grove advisors provide ongoing investment advice and monitoring of client portfolios. These services may be on a discretionary basis, which means that you don't need to direct your advisor to make trades, rebalance your portfolio, or make other investment decisions for your account. For such services, clients pay Silver Grove a fee for investment management, brokerage, custody, and administrative services. The fee, which is negotiated between the Silver Grove advisor and client, is typically a percentage fee based on the value of the assets in the account. These ongoing services and fees are set out in the Investment Advisory Agreement between Silver Grove and the client, which the client can terminate at any time.
As an alternative, or in addition to ongoing investment advice in an advisory program, clients may engage with a Silver Grove advisor for planning services. The client pays a flat fee or hourly fee for this type of service, which is not ongoing.
As noted above, when Silver Grove acts as an investment advisor, it's required to disclose all material conflicts of interest between Silver Grove and its advisory clients. At the time of engagement, advisory clients receive a Form ADV disclosure brochure that contains important information about Silver Grove and the Silver Grove advisor, the advisory services to be provided, the fees to be paid for such services, and material conflicts of interest. When considering whether to engage a Silver Grove advisor, it's important that you carefully read the account agreements and disclosures that are provided to you.
What does it mean to work with an advisor in a brokerage relationship?
Our broker/dealer, LPL Financial, is registered with the SEC and a member of the Financial Industry Regulatory Authority (FINRA). In addition, LPL is registered as a broker/dealer with each of the 50 states. Silver Grove advisors offer the following services through our broker/dealer, LPL Financial:
- Taking customer orders and executing securities transactions
- Making recommendations to buy, sell, or hold securities
- Custodial services
Unlike an investment advisory relationship in which clients pay an ongoing asset-based fee, in a brokerage relationship, clients typically pay a commission [to LPL] on each transaction in the account. Clients don't pay commissions in an advisory relationship. The amount of the commission in a brokerage relationship varies depending on the security or investment product selected by the client. For mutual funds, the commission or sales load is typically paid upfront, is charged directly against the investment, and is based on the amount of assets invested. For example, if you have $1,000 and want to invest it in a mutual fund Class A share with a 5% front-end load through a brokerage relationship, the $50 sales charge you must pay comes off the top, and the remaining $950 is invested in the fund. Mutual funds typically offer multiple share classes that have different fees and expenses and pay brokers in different ways. The applicable sales charge is described in the prospectus or other offering document of the investment product provided to the client in connection with the investment. Our broker/dealer, LPL, may also receive other types of fees and compensation, such as trail payments (also called 12b-1 fees) and markups.
Silver Grove, and LPL as our broker/dealer, has a duty to deal fairly with its brokerage clients. When a Silver Grove advisor makes a recommendation about a security in a brokerage relationship, Silver Grove has an obligation to determine that the recommendation is suitable for the client based on the client's stated investment objective, risk tolerance, tax status, and other information provided by the client. Unlike an investment advisory program account, the Silver Grove advisor does not have a duty to provide ongoing investment advice with respect to a brokerage account. Silver Grove does not take discretion from its brokerage clients; in other words, Silver Grove will only place transactions for its brokerage clients upon direction from the client. Silver Grove's obligation to disclose detailed information to clients about the nature and scope of its business, fees, conflicts of interest, and other matters is more limited than in the context of an investment advisory relationship.
What should I consider when deciding between an investment advisory or a brokerage relationship?
Here are some questions you may wish to ask yourself when deciding whether to work with a Silver Grove advisor in an advisory or brokerage relationship:
1. An advisory relationship may be the right choice for you if:
1. You want or need an advisor to manage your investment portfolio;
2. You want to engage an advisor holding themselves to a fiduciary standard with a duty to provide you with ongoing investment services;
3. You wish to work with an advisor where the fee is consistent, and not tied to the number or type of transactions in the account
2. A brokerage relationship may be the right choice for you if:
1. You prefer to make the investment decisions yourself and are just looking for the advisor to execute on your orders;
2. You desire only occasional advice or recommendations on particular investments from an advisor;
3. You prefer to pay your advisor for each transaction that you place
What do you expect will be the number and size of the holdings and transactions in your portfolio?
If you plan to hold a number of securities and to be transacting and rebalancing the portfolio on a frequent basis, an advisory account may be the right choice. However, if you plan to buy only a few securities and follow a buy-and-hold strategy for a long period of time without ongoing advice from an advisor, a brokerage relationship may be the right choice.
In some cases, an advisory relationship may cost you more than a brokerage relationship. However, in other cases, a brokerage relationship may cost you more. These questions and the information above will help you determine what level of service and pricing structure is appropriate for you. Keep in mind that your needs and goals may change over time, and how you transact business with your advisor may change as well. As such, this should be a topic you review with your advisor over the course of your relationship. If you have any questions about the differences between an advisory and brokerage relationship, ask your advisor; they are a valuable resource to help you make the investment decisions that are best for you.