EDU Articles
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What is the Federal Trade Commission (FTC)?
The Federal Trade Commission (FTC) was originally created to encourage market competition and to protect consumers by breaking up monopolies and monitoring mergers and acquisition activity. It has now branched out into more areas in the pursuit of consumer protection and fair markets. The FTC is now comprised of three bureaus: Consumer Protection, Competition, and Economics. They protect consumers from fraudulent business activity and monopolistic business practices. Continue reading...
What is the commodity futures trading commission?
The Commodity Futures Trading Commission (CFTC) is an independent government agency that regulates the futures market. Futures are not considered securities, so the CFTC has jurisdiction over such exchanges while the SEC does not. The CFTC is the regulatory authority for the futures trade. This includes futures on currency, indexes, and stocks. Futures are not technically considered securities, because a security is defined as a contract that depends on the performance of a third party, while futures contracts only depend on two people. Any options that stem from futures are considered securities, however. Continue reading...
What is the Fiduciary Standard?
The Fiduciary Standard stipulates that an advisor must place the client’s best interests first. The best way to understand the fiduciary standard is to think in terms of another standard, called the suitability standard. The suitability standard says that a broker/advisor need only recommend investment products that are “suitable” for the client - but those investments do not necessarily have to be in the client’s best interests. Continue reading...
What is a Registered Investment Advisor (RIA)?
An RIA is an asset manager that is registered with the SEC (in whatever state(s) they operate) and complies with certain rules and regulations. RIAs typically earn their revenues through management fees, which are almost always based as a percentage of assets under management — the average management fee is between 1% - 2%. Having management fees as a percentage of assets allows for the interest of both parties to align - as the assets grow, so does the nominal amount of fees the RIA earns. Continue reading...
Should I pay for financial planning services?
Any professional that you work with for financial planning is going to be compensated for the work they do, but there are different ways they earn their pay. Whether it’s worth it to you is another question. If you have enough knowledge and time on your hands, and your investment portfolio is not very complicated, you may be able to manage it on your own. This can save you some money on financial advisor fees. Continue reading...
What is a Good Financial Advisor?
A good financial advisor should care as much about your investments as you do, and be personable and knowledgeable enough to make the relationship worth your time, money, and trust. Choosing a Financial Advisor is a bit like choosing a caretaker for your child: you would want someone who gives you a sense of security, who has professional references or the recommendation of a trusted friend, years of experience, is reliable and honest, can foster growth, and ideally, will care about your child almost as much as you do. Continue reading...
What are Federal Agencies?
Agencies are entities which are created by the federal government to fulfill an obligation or role that is deemed to be in the best interest of the country. Agencies might also also be known as Commissions, and they can be formed by legislative action, or through the direction of a specific Department or Branch of the government. Some federal agencies are known as Commissions, Task Forces, or Administrations, but all are generally tasked with a specific responsibility or focus. Continue reading...
What are No-Load Mutual Funds?
Mutual funds that do not charge a front-end or back-end sales load are known as no-load funds. What are Load Mutual Funds? While no-load mutual funds do not require the investor to pay sales charges (i.e., commissions) when buying or selling that fund, it’s important to remember that nothing is free, especially in the world of financial services. The portfolio manager of the fund and his team of analysts still have their salaries, bonuses, retirement benefits, and so on, and fees are needed to pay for it. Continue reading...
What is the Suitability Standard?
The suitability standard states that a broker-dealer is obliged to, in the very least, make investment recommendations that are suitable for their clients. The SEC defines a broker as someone who acts as an agent for someone else, and a dealer as someone who acts as a principal for their own account. The suitability standard only details that the broker-dealer has to reasonably believe that any recommendations made are suitable for clients (in terms of the client’s financial needs, objectives and unique circumstances) instead of having to place his/her interests below that of the client. An example would be a broker recommending a proprietary bond fund for a client looking for a fixed income solution. Continue reading...
How do Advisors Charge and How Much Should I Pay?
It depends. There are three commonly used fee structures: fee-only, fee-based, and commission-based, Advisors can be compensated in three ways: It’s impossible to say exactly how much you will end up paying for an advisor – it really depends on the type of advisor you decide to hire, the amount of trading or planning you will be using them for, and the size of your portfolio. In some transactions with commission-based planners, you may not see any out-of-pocket cost; their commissions are built into the products in such a way that it may not appear that there is any direct cost for their services. Continue reading...
What are the Expenses Associated with the Purchase of ETFs?
There may be fees and commissions involved in the purchase of ETFs, and ongoing expenses that reduce earnings over time. Purchasing an ETF will probably involve paying some fees or commissions to the service or broker through which you acquired the shares, but these days those commissions are fairly minimal. These fees will be the same or less than you might pay for using their services to acquire positions in other securities. ETFs are a relatively cheap way to gain an exposure to a particular sector of the market or to take a position that might otherwise be difficult and expensive to research, calculate, and engineer. Continue reading...
How do I Buy an ETF?
ETFs are widely available through brokers and online trading services. ETFs can be purchased in the same way that you might purchase stocks. ETFs are priced continuously during the day, and reflect the underlying basket of stocks comprising this ETF. The fees and commissions investors pay for purchasing ETFs are exactly the same as those for stocks. The market for ETFs is highly liquid, with substantial trading volume every day. As such, ETFs are readily available and easy to acquire, but it is important to remember that they are not quite as simple as individual stocks. Continue reading...
How Can You Buy a Stock?
There are many services online and custodians that that can facilitate stock trades. Anybody can buy shares of a publicly traded company, but it must be done through a brokerage firm or a custodian. Brokers and brokerage firms act as middle men between the buyer and the seller. Some brokerage houses such as E-Trade, Ameritrade, or Charles Schwab offer low-cost services online to anyone with a checking account, and offer no personal advice. Other brokerage firms focus on the human element, offering investment advice and making additional money through long-term client relationships and the commissions and fees that result from portfolio management. Continue reading...
What is an ADV form?
A form ADV can be requested to find out all about the fees and professional backgrounds of a financial advisory firm. Firms who engage in the solicitation of securities or give investment advice must file form ADV with the SEC and keep it updated, usually on an annual basis. It is similar to the form U4 that individual securities-licensed professionals must submit and keep updated in the event of changes of address, tax liens, industry disciplinary actions, and so forth, but the ADV is filed on behalf of a firm instead of an individual. FINRA and the NASAA keep up with the filings as well. Continue reading...
What is Earnings Season?
Earnings season describes not one, but four times in a year, when corporations release their quarterly earnings reports. Investors look forward to this time because they are able to get an update about how the year is going, compared to projections. After each fiscal quarter ends, there are a few weeks in which companies file their quarterly reports with the SEC and announce their current earnings and sales numbers. Each of these periods is known as earnings season. Continue reading...
What is a "Breakpoint"?
A breakpoint generally refers to a level of investment at which the fee structure changes. For mutual funds, it can mean a level that triggers a reduced sales load. An investor can either hit the breakpoint at the time of original investment or in some cases can sign a letter of intent to reach a certain investment level and qualify for the reduced fee that way. There may be multiple breakpoints for an investment, with the fee falling at each one. Continue reading...
Is there a Benefit to Self-Managing?
An investor may be able to save money in management fees self-managing, but there are also limitations and risks. Perhaps the biggest risk is the role that emotion can play in investing. Even the most skilled professionals are tempted by emotions in the market - big declines like the financial crisis can make one second-guess whether the market has hope of recovering, and big gains can create confidence that leads to less prudent risk-taking. Continue reading...
What is an Investment Club?
An investment club can be a term used for a group that organizes itself for the purpose of pooling investment dollars and participating in the market, or for a group that meets for informational and educational purposes. Clubs that actually invest sometimes organize themselves as LLCs and establish a system for how to choose and manage their investments as a group. Even though “investment club” may sound like an informal and relatively unregulated way to invest with pooled assets, they are actually subject to regulation by the SEC. Continue reading...
What is a commodities futures contract?
Commodities Futures are one of the most highly traded securities in the world, and it is partially because nothing has to be delivered by the participants as in a spot-trading market. Futures can be purchased on margin, opening up large positions, long or short, and if a trader finds a place to exit before the settlement date of the contract, the trader will buy/sell to close his or her position, and the exchange will regard the trader’s position as flat, and nonexistent for all intents and purposes. Continue reading...
What is the Investment Advisors Act of 1940?
The IAA sought to regulate an industry that was deemed to be of public concern and within the Federal jurisdiction, though it did define some state-specific jurisdictions. It defines investment advisors and made laws dealing with fraud, advertising, non-public client information, disclosures, handling of client funds, and so forth. The Investment Advisors Act of 1940 established definitions for the capacity in which an investment adviser and investment advice could be defined, and made rules concerning the standards by which advisors should operate. Continue reading...