Hardesty Capital Management - Investment Advisors

Advisor, Broker, Planner?

Navigating through the maze of different options for investors who are looking for wealth management services is no easy task. Of the three primary choices, an Investment Advisor, a Stockbroker, or a Financial Planner, there are hundreds of firms claiming to offer investment advice. Everyone in the investment advisory business wants to be in "wealth management." Stockbrokers now call themselves "financial advisors" and financial planners call themselves "wealth managers."

Just as a hot dog vendor is not a chef, a new title does not make anyone a professional money manager. Look for the number of professional designations—such as CFA (Chartered Financial Analyst) and/or MBA—behind the team members' names managing your hard-earned money. Specifically, the CFA program is the gold standard for professional money managers.

Investment Advisor

Stockbroker

Financial Planner

Investment Advisor

In our humble opinion, Registered Investment Advisors (RIA's) are the best choice to manage your money. Like other RIA's, our fees are calculated on the market value of the relationship. Working on a fee basis aligns our interests with our clients' – if their assets increase in value, so, too, does our fee. At Hardesty Capital Management, we invest almost entirely in individual securities, so there are no other hidden fees. In addition, we perform all of our research internally on the investments we make on our clients' behalf. This provides our clients with a truly objective, disciplined approach to investing, free of any potential conflicts of interest.

RIA's are regulated by the SEC (The U.S. Securities and Exchange Commission). As a matter of law, RIA's are required to always place their clients' interests ahead of their own, making them legal fiduciaries.

Close Window

Stockbroker

Brokers are probably the most difficult choice of the three. Selecting from all of the different companies and their representatives is complicated. Each firm offers a smorgasbord of choices (hedge funds, mutual funds, manager of managers, etc.) with different fee structures and investment approaches. Adding to the complexity, investors must sort through all of the potential conflicts of interest brokers face. For example, brokers are incentivized to make transactions because that is how many of them are paid. Are these transactions in the client's best interests? Another example is research. Most brokers get their research from their own research department. Are their analysts recommending stocks based on objective analysis, or is there an investment banking relationship to protect?

Brokers are regulated by the NASD. The NASD is a securities industry self-regulatory organization which requires brokers to make only recommendations that are suitable to each client. The legal distinction, however, is brokers are not fiduciaries and, therefore, are not required by law to put their client's interests ahead of their own.

Close Window

Financial Planner

Financial Planners usually have the CFP (Certified Financial Planner) designation. Like Investment Advisors, CFP's tend to take a more holistic approach to wealth management offering services which might include reviewing financial documents, writing a formal financial plan, and assessing insurance needs. Problems arise, however, from the standpoint that CFP's typical investment vehicle of choice accompanying their financial plan is a mutual fund product. Equity mutual fund fees are typically much higher than the 1% level Hardesty Capital Management recommends investors pay for investment advice. Moreover, mutual funds are notoriously bad performers. The Journal of Portfolio Management pointed out that only 14% of mutual funds outperformed the market over the 10-year period 1989-1998. In addition to cost and performance, potential conflicts of interest exist in the form of mutual funds paying planners marketing incentives to push their products.

For more information on the differences, please click "Choose Wisely" to download a PDF of an article from Baltimore SmartCEO.

Investor Intelligence

Client Resources