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Are You Being Sold Investments or Paying for a Strategic Financial Advocate?
- Jose Alvarez, CFP®, MBA
- Jan 13
- 11 min read
Updated: Jan 15
Let's talk about something I refer to as the "RIA premium". Not as a slogan and not as a value judgment, but as a way to explain why working with an independent, fee-only Registered Investment Advisor (RIA) usually costs more than working with an advisor at a broker-dealer, and why that difference exists in the first place.
Most people never get this explained to them in English. They see some good marketing, a fee or commission they feel is palatable, they hear words like "fiduciary" | "sales charge" | "fee-only", and then they’re expected to just decide whether it's the right fit for them or not. That’s not a great way to make a decision, especially when the majority of people in the U.S. of A. don't have a financial advisor, so they've never experienced one way vs another. But it's important to understand what these words mean, what they cost, and why - especially, when the dollar amounts get large over time.
So, let’s walk through it the way I would with a client who actually wants to understand the tradeoffs, not just hunt for the cheapest option.
How Most People Experience Financial Advice
When someone tells me they have a financial advisor, more often than not that advisor works at a firm that is under a broker-dealer. That could be a bank, a credit union, or a national brand like Edward Jones. It could also be someone affiliated with a household broker-dealer name like Raymond James, LPL, Fidelity, or Schwab.
And I want to be clear here, because this matters... just because I disagree with the broker-dealer way of business, these advisors are not bad at their jobs. In fact, they can be quite good at their jobs because, in my experience, their job is to sell financial products and know enough about different financial matters to not lose clients.
For fairness, here are some things I've found they can be good at:
They’re good at creating regular market participants
Any time we can get more people investing, the better it is for everyone. Too many people are being financially left behind because they're not investing. These advisors can be good at getting people comfortable with on-going, recurring investment plans.
They’re good at helping someone start investing when they otherwise wouldn’t
The barriers to working with a broker-dealer affiliated advisor are usually pretty minimal so they're good at helping people overcome the fear of rejection for "not having enough money" or "enough complexity."
They have the investment and insurance universe available to them
Because fee-only RIAs surrender their ability to charge commissions, products like annuities, life and long-term care insurance, and other products are not available. Brokerages, however, are able to provide them.
They’re also really good at selling products
They can usually sell the hell out of mutual funds, annuities, and life insurance—those products can help in the right situations, but the real benefit often accrues to the advisor, which isn't always bad if the first 2 bullet points are accomplished. There are excellent advisors in both models so I’m critiquing the incentives, not the people.
Okay, so we got that out of the way as best I could... I tried to be fair but obviously I'm biased so let's clear our palate once more:
That kind of business is not a moral failing. That’s the structure of the broker-dealer world. Brokerage firms exist to manufacture and distribute financial products, and advisors in that system are compensated accordingly. It is what it is, as they say.
Where things start to break down is when a client’s situation becomes more complex than simply picking investments.
Alright, the Real Limitation Isn’t the Advisor
Most people assume that if their brokerage advisor isn’t helping with tax strategy, estate planning decisions, or business planning, it’s because the advisor doesn’t care or isn’t smart enough.
That can absolutely be true but it's not just the advisor's fault.
The bigger issue is that brokerage advisors are governed by their broker-dealer - LPL, Raymond James, Edward Jones, Fidelity, Schwab, etc. - not just by the firm name on the door. The broker dealer sets strict rules around what advice can be given, how it can be framed, and what topics are considered off-limits.
Those rules are not designed around the most experienced, knowledgeable advisor at the firm or the most qualified, complex client's needs. They’re designed around liability management.
Broker-dealers create policies with one thing in mind: their risk. They need to know what group of people at their firm are considered the "lowest common denominator," what risk do they pose to the firm, and how does the firm mitigate it. Typically, this is the newest, least experienced advisor on the platform. The one most likely to say the wrong thing, give advice they’re not qualified to give, or expose the firm to a lawsuit.
As a result, even a thoughtful, well-intentioned advisor is boxed in. They can only do so much and have only so much incentive to continue their development. Not because they don’t want to help, but because the structure doesn’t allow it so why pursue it?
Does it always matter to the advisor? Though not always, I've found it depends on the comp and where they've set the bar for themselves in terms of client impact. If their compensation from investment sales is high enough and they feel they're making an impact in client lives - even marginally - then what need is there to venture out into the scary world of the independent RIA? That’s the tradeoff baked into the brokerage model:
You can't do everything you might want but you'll get paid really well and you'll have an endless well of prospect leads.
What Changes in the RIA World
RIAs operate under a very different structure that isn't governed by an all-mighty broker-dealer. RIAs will use a custodian for holding client assets, reporting, and billing - rather than be confined to the rules of a traditional broker-dealer.
RIAs come in all sizes... some manage billions of dollars with large teams and layers of staff, but most are much smaller. They might be one, two, or three advisors that can sometimes be partners or sometimes independent advisors sharing technology and infrastructure.
What they all share is independence, typically fee-only structures, and fiduciary service to clients.
Independent, fee-only RIAs don't work for a broker-dealer. They are not paid commissions for selling investments and they're not restricted to a broker-dealer’s product menu or sales framework. Within regulatory guidelines set by the state or the SEC, they decide, internally, how they work with clients.
That independence matters more than most people realize.
It allows RIAs to specialize in the areas they feel they are strongest in and their clients will get the most value from. Examples of specialization can be:
Provide specialized investment portfolios
Focusing heavily on tax planning
Prioritize estate planning coordination
Some serve small business owners or executive level management of Fortune 500 companies
They might serve agricultural families and focus on the complexities of passing down or exiting a family or professionally managed farms
Others might benefit their clients in helping negotiate and manage equity compensation and complex income structures
This specialization helps RIAs limit clients while providing the biggest bang-for-their-buck to those clients... also, it allows them to draw clear boundaries on what they do and don't do.
Most fee-only RIAs do not:
Sell insurance
Sell annuities
Sell commissioned products at all
When those needs arise, they typically refer out. That’s not a weakness or flaw in the design of the RIA. It’s a deliberate choice to avoid conflicts of interest in the advice they provide to their clients.
Why Cost Always Comes Up
I’ve said this before, and I’ll keep saying it...
If all you want is portfolio management, you can probably do it yourself.
Not because it’s easy or because it's not worth it to pass it off to someone like me... but because the information is available if you’re willing to spend the time learning how markets, risk, and diversification actually work.
But most people don’t want to spend that time, and that’s completely reasonable. I think of it like building a house. Sure, I could learn how to build one if I wanted to. What I don’t want to do is spend the time to learning codes, engineering, and construction details when I’d rather focus on my family, my work, and the parts of life I enjoy.
That’s why people hire professionals.
But cost still matters, especially when long-term investment performance often ends up looking pretty similar across different approaches.
So, let’s talk about an actual example.
Path | Upfront Cost | Ongoing Fee | Total Fees Paid | Net CAGR |
ABALX A Share | $12,500 | 0.56% | $130,038 | ~7.7% |
Benchmark Advisory | $0 | 1.07% | $211,344 | ~7.0% |
A Common Brokerage Cost Example
One of the most widely used mutual funds I've seen in the brokerage world is the American Funds American Balanced Fund, Class A (ticker: ABALX).
Disclosure: I currently do not own or use this mutual fund in my business.
ABALX is designed to sit roughly in, what I consider to be, the middle of the risk spectrum, usually around 60% stocks and 40% bonds. It's a good mutual fund; I have no problems with it. I just wanted to use it as an example because I've seen it so often as a standalone "portfolio."
Its net expense ratio is 0.56% per year. That’s not outrageous, but it’s not cheap either. That fee pays the team managing the investments inside the fund and we all pay it, even advisors. This fee is charged on the total dollars you invest within the mutual fund or ETF. There's really no getting away from it.
On top of that, Class A mutual funds carry a front-end sales charge. Using a $500,000 investment as an example, the sales charge at American Funds in that level of investment is 2.5%. That’s $12,500 paid immediately, reducing the amount actually invested to $487,500.
From there, every year, the fund charges its 0.56% net expense ratio.
Over the 20-year period, from the start of 2006 through the end of 2025 and accounting for the actual historical performance - gross of taxes - the total fees paid just to hold that fund would have been roughly $130,000.
Those costs exist for a reason. Someone has to decide what goes into the fund, manage risk, and rebalance the portfolio. In the brokerage world, part of that ongoing cost is often shared with the advisor as a trailing commission, which creates an incentive to both place the asset in a more expensive fund and keep it there for the trailing commissions.
Year-End | ABALX Cumulative Cost | Advisory Cumulative Cost |
2010 | $27,288 | $28,926 |
2015 | $49,994 | $68,585 |
2020 | $81,698 | $126,631 |
2025 | $130,038 | $211,344 |
How the RIA Cost Structure Differs
A fee-only RIA does not receive commissions. They don’t care which fund pays more, because none of them pay anything back to the advisor or the RIA, as a company. That gives them a strong incentive to reduce internal investment costs wherever possible.
Instead of a higher-cost mutual fund, an RIA might use a portfolio of low-cost index funds - in this case, SPY (60%) and AGG (40%) - with a combined expense ratio closer to 0.07 percent.
Disclosure: I currently do not own or use these funds in my business.
However, the RIA will typically charge an "assets under management" fee, often around 1.00% per year, charged very clearly on the account balance.
Using the same 20-year period and actual market returns - again, gross of taxes - the total advisory cost in that scenario would have been around $211,000. That’s roughly $80,000 more than the brokerage mutual fund example over the 20-year analysis period.
This is usually where people stop thinking and decide the RIA is automatically the worse deal and decide the brokerage advisor is the best route to go.
Which completely makes sense to come to that conclusion... if the portfolio is the only thing being compared.
Where the RIA Premium Shows Up
If all you’re getting from an RIA is investment management, you might be overpaying. That’s not controversial, and any honest advisor will tell you that. An exception might be if you're investing heavily into private equity/credit deals that require specialized knowledge and experience in that field.
Besides that, the RIA model is not designed to justify its cost through portfolio performance alone.
Where the RIA premium shows up and what it really buys you is fewer unforced errors over a lifetime of decisions that compound, quietly and expensively, when they’re handled poorly.
Tax and Legal
It shows up when investment decisions are made with taxes in mind, not just this year, but across decades, so you’re not sleepwalking into unnecessary capital gains, income recognition at the worst possible time, or portfolios that look fine on paper but are actually crying out for help because of all of the income and capital gains distributions that are happening. It shows up when estate planning isn’t treated as a document you sign once and forget, but as something that’s coordinated between your wealth manager, attorney, CPA, and family on how assets should actually be titled, who owns what, and how money will move when someone dies, because that’s where plans most often break.
Gifting and Estate
It shows up in gifting and charitable strategies that are intentional instead of reactive, where the question isn’t “how do I give money away,” but “what am I trying to accomplish, who do I want to benefit, and what’s the least destructive way to do it from a tax and control standpoint.” It shows up in trust structures that are designed to function in real life, not just look good in a conference room, and in beneficiary and ownership decisions that don’t quietly contradict each other until it’s too late to fix them.
Business Planning
It shows up for business owners when valuation, exit planning, and succession aren’t left until the last year of planned operation, when options are limited and leverage is gone, but are thought through early enough that the business actually supports the owner’s life instead of trapping them in it. And it shows up in cash flow planning that evolves as income changes, kids grow up, businesses mature, and priorities shift, instead of freezing someone into a plan that made sense once and then slowly stopped fitting reality.
That’s the difference... it's not in better predictions because we can't predict market movements any better than the next advisor or analyst. RIA and independent advisors strive for better decisions, made earlier, and corrected before they become permanent.
Similar Returns, Different Outcomes
When you compare long-term performance, gross of taxes and fees, between something like the American Funds Balanced Fund and a simple benchmark built from low-cost index funds, the results tend to be remarkably similar over time. In this case, we're reviewing January 1st, 2006, to the close of 2025; we're assuming $500,000 of initial investment and no additional contributions, reinvested dividends, and we're assuming no tax impact (which can be pretty important).
In simple portfolio management, the real difference shows up in tax minimization, cost efficiency, flexibility, and the quality of decisions made outside the portfolio.
That’s where the RIA premium earns its keep... lower lifetime taxes, cleaner estate transitions, better business outcomes, and fewer expensive mistakes made under stress.
Independent advisors charge more because, most of the time, they can do more. They are not constrained by broker-dealer policies written to protect them from the least experienced advisor's mistakes. They are not incentivized by commissions. They get to choose who they work with and how deeply they engage.
That freedom costs money, and it should. You can buy the Black+Decker cordless drill for $65, and it might work for exactly the thing you need... or you can buy the $250 Milwaukee drill that is maybe a little on the higher end of your needs but be delighted with how much better it is.
Cost is only important in the absence of value.
If you’re paying the RIA premium, the real question isn’t whether your portfolio is doing fine. It’s whether you have an advisor that can help achieve the outcomes you hope for; if they can, are you using your advisor to their potential, or are you just outsourcing investment management you could’ve done yourself?
If you want to pressure-test that, I’m happy to have an easy chat about what you’re getting, what you’re not, and how Harvest Horizon Wealth services its clients.
Jose Alvarez, CFP®, MBA
Financial Advisor
Founder
Harvest Horizon Wealth Strategies
The information presented in this blog is the opinion of the author and does not reflect the views of any other person or entity unless specified. The author may hold positions in any securities discussed in this blog. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. Chart data provided by Finomial and Hazel and is for illustrative purposes only. Investment performance and costs are not guaranteed and considered accurate as of the date of the writing. Past performance is not indicative of future performance. This blog should not be interpreted as a full analysis of any particular subject including the subject discussed. Images included in this blog may be created by artificial intelligence. If so, resemblance to any existing persons, past or present, is purely coincidental. The information provided is for informational, entertainment, and educational purposes and should not be construed as advice. Advisory services are offered through Harvest Horizon Wealth Strategies LLC, an investment adviser registered with the state of Wisconsin.
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