The following are seven reasons why Durig Capital and its Registered Investment Advisor’s low cost fiduciary model of services is seen as superior to that of brokers. Each will be reviewed in more detail.
Durig Capital’s Advisory Model
|Registered Investment Advisor||Investment or Stock Broker|
|3rd Party Custodian:
|In house custody|
Fiduciary vs. Suitability
Wikipedia describes a fiduciary relationship as “is the highest standard of care at either equity or law.” In light of headline news about fraud, MF Global, Madoff-like Ponzi schemes, and the lack of regulatory oversight, we want to emphasize how Durig Capital services clients.
What are the differences our between responsibilities as a Registered Investment Advisor
( “Advisor”), and those of a Registered Representative that is employed by a broker-dealer, also known as a “broker” or “stock broker”?
Durig Capital believes it’s important that you understand differences between an Advisor and a Broker’s legal responsibility and duty. The differing levels of legal responsibilities and duties have a direct bearing on what investments might be recommended to you, and thereby possibly greatly impacting your returns.
Durig Capital is a low cost, fee only, Registered Investment Advisor (RIA.) Under the Securities Act of 1940, Durig Capital is required to fully accept the duty of being a fiduciary, which is to say that we put your interest above our own and declare any possible conflicts of interest that may arise. You can be assured that the investments we select and the portfolios we construct meet our duty to you of putting your interest first. Our only thoughts when selecting investment products for your portfolio is whether they, on their own merit and risk consideration, will provide you with the best returns relative to the risk and meet your financial objectives.
A broker, or Registered Representative, is only required to recommend investments that minimally qualify as “suitable” for you. In other words, as long as an investment qualifies as “suitable,” a broker can legally put his own interest first, even if directly related to his or her person pay. Thus his own personal commission or pay could be his primary interest when recommending a “suitable” investment to you.
Low fees vs Commissions and Loads
We have been told repeatedly that our bonds only single fees are the lowest in the industry. Although we don’t claim they’re the lowest, we have yet to find an advisory service or mutual fund who’s total cost to clients is less. Most brokers charge any combination of costs in up front commissions or fees, sales loads, back end loads and fees, plus management and trailing fees. Over time these fees can result in poor or diminshed returns. We don’t think it is in your best interest to pay for advisory services up front, especially in a market like we are currently in, as the fees can effectively diminish your returns to the point where your broker benefits or profits more from their recommendations than you do. At Durig Capital, our bond services fee is a low single level fee based on your own segregated account. Mutual funds, on the other hand, manage your funds by combining the monies, selections and bond maturities with many others into a single pool of investments, and typically charge a higher fee. As other investors will often have different goals and objectives than you do, their decision to move in and out of a blended fund like this could and will affect your returns. Therefore, we see this as higher fees for what appears to be less personalized service.
Transparency vs. Disclosure
Brokers usually follow all the rules for legal disclosures. You probably have been inundated with highly formal disclosures printed in small-type and hard-to-read language from brokers about various investments. That’s because they have a compliance standard for “disclosure.” At Durig Capital, we are committed to the higher standard of transparency. We print our ideas regularly, and willingly show them to our clients, fully disclosing and detailing any aspect of our service offerings, our relationship with investment product providers, and how we make money. We provide clients with quarterly fee reports with complete transparency on the all the fees we charge. We do not take any commissions, “marketing incentives”, or “soft dollars” from investment product providers, as we select investments solely on their stand alone merit.
Registered Investment Advisor vs. Investment/Financial Advisor
Over the past 10 to 15 years, many brokers have co-opted the title of “Investment Advisor” or “Financial Advisor” without accepting the fiduciary duty of a Registered Investment Advisor as described in the Securities Act of 1940. Instead, they adhere to the “suitability” doctrine. In fact, several very large, household-name brokerages have been lobbying Congress hard to avoid having a fiduciary level of accountability imposed on their stock brokers. Not surprisingly, it is not uncommon to find that “suitable” investments at large brokerages are also those that pay the broker and his employer the highest built in fees.
Financial firms conveniently blur the line between broker-dealer and investment advisor by inventing and bundling new products. Because of the diversity of these products and services, investors sometimes fail to differentiate between brokers and Register Investments Advisors using the fiduciary standards that federal regulators have defined for RIA’s.
3rd Party vs. In-House Custody
Another safeguard that Durig Capital employs is the use of third party custodians for your assets. Your accounts are held at a major custodian, like Fidelity Investments or TD Ameritrade, and are not held in-house. We have limited power over the funds held by these third party custodians. That power is limited to buying and selling securities on your behalf, moving funds between your accounts, and having funds sent directly to you via your address of record or like-registered account. Clients prefer this model, as it avoids any possibility of hidden or added custodial costs that would reduce your returns.
The fiduciary practice of using third party custodians was not utilized by any of the firms involved in highly-publicized fraud or Ponzi schemes, or by MF Global. Typically, the parties involved in fraudulent schemes have direct control of the assets under management and direct control of most of the information about those assets (meaning that they generated their own client account statements, audit information, and periodic materials, which essentially allowed them to print false and misleading returns). Their illicit internal practices could be hidden from public scrutiny, and thereby enabled their embezzlement and fraud. By using a third party custodian, clients are always able to double check and confirm all transaction and account information provided by Durig Capital against the online statement and account information provided by a proven market leading custodian, as a check-and-balance.
Advice vs. Transactions
Because brokers are paid by commissions on products sold, there are often internal pressures to do transactions with high commission payout products, as a broker their job performance and bonus pay is typically based upon their revenue production. Furthermore, brokerage firms are usually investment product manufacturers who view their broker/employees as the prime distribution channel to sell their in-house products, which often have significant built in and hidden fees. Durig Capital is paid a very low advisory fee only, and takes no other fees or soft dollars. Therefore, we select investment for the right reasons, having no other incentive to sell any product or to do trading in client accounts.
Ethics vs. Law
Even though more stringent regulations are under consideration by our government, unethical behavior cannot be legislated out of existence. We believe the best way to earn your trust is through sound advice with an open and honest relationship. No matter what is decided in the legal courts or government institutions regarding financial industry regulations, at Durig Capital we embrace our fiduciary responsibility and see it as our duty to serve our clients. Our ethics, high moral values and many extra miles that we go, simply provide a better service than what can be “legislated.”
At the core of Durig Capital are our high values, low fees, and our fiduciary duty which we pledge to you that we will “Always put your interest first.”