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7 Types of Financial Companies

There are 7 basic types of firms that provide financial assistance, support, guidance, education, investments, and solutions/products.

There are Registered Investment Advisors (RIA), Broker Dealers (B/D), Insurance Companies, Robo Advisors, Accounting firms, Tech Companies, and Discount Broker Dealers.

First we have our Registered Investment Advisors. These are, as a general rule, partnerships or smaller corporations that manage the overall financial situation of clients, and in some cases institutional investors as well. They must be registered with the Securities and Exchange Commission (SEC) for each individual state that they have clients in.  An RIA Financial Advisor will conduct information gathering, Risk tolerance, and spend time getting to know your goals and needs. Most of the time they also educate a client as to what the implications are of making different financial decisions. One of my favorite things about an RIA, is that many of them will be full service. They’ll help with investments, real estate, insurance, estate planning, power of attorneys, wills, and more. They may outsource part of it, or bring in an expert to do estate planning, etc. But they keep you aware of the broad scope of protecting, growing, and sheltering your money. You may not have heard of any of these, but here are some RIA’s: Geneva Advisors, HighTower Advisors, Mill Creek Capital Advisors, Ferguson Wellman Capital Management, Swan Global Investments, and True North Advisors.

Broker/ Dealers are those companies that are like The Wolf of Wall Street. I mean, except that fact that they aren’t awful money laundering devils. They call people to sell them financial products, usually in the form of stocks or bonds. Investment advice is given, and they range from small boutique firms to large commercial companies and investment banks. The difference between an RIA and a Broker/Dealer is a B/D historically purchases their own securities (stocks and bonds and other products) and then sells them to the customer, whereas an RIA buys securities on the client’s behalf. The Broker of a B/D is buying and selling on behalf of clients, the Dealer side is when the company trades their own securities. Examples of Broker/Dealers include Raymond James, Wells Fargo, AXA, Waddell & Reed, Voya, and Edward Jones

Insurance Companies usually deal with just that… Insurance! Northwestern Mutual, Geico, Allstate, State Farm, Progressive, Farmers, Liberty Mutual, and New York Life are a few examples. Most of the ones that have huge TV ads. There isn’t much else to say. These companies are very important, and having specialized skills in specific insurances can be very beneficial in reducing premiums and having quicker turnaround times when claims are made. Some RIA’s and B/D’s will have specific individuals/teams in their group that specialize in either selling insurance, or working with insurance companies to get your insurance. One thing I like is how an RIA can work with many insurance companies, whereas an agent for a specific company only sells that Insurance. Some insurance agents will be licensed with several companies and can sell you policies from different companies depending on your needs.

The way of the future is Robo-Advisors. The basic concept here is that you can break down risk tolerance and needs into numbers, and computers can then spit out information about what you should do, or you can authorize a computer to auto-invest and rebalance and work out your investments for you based on your information you give it. Very smart people back these up and as a result of mass users for one program it can be cheaper to use a Robo. Remember though, that holes are usually left, and Robo’s can only do so much.

Tech companies are companies that leverage tech with finance. Lending Club is an example of that. You add money that is utilized in creating loans that then pay you back as the person pays back lending club. Robinhood is a financial app that has free stock trades. Stripe is a payment taking company. Some finance companies create platforms for making trades like TDAmeritrade or TradeKing, (though some may be better classified as Robo-Advisors, depending on how they are used). Some create plateforms for financial planning, like MoneyGuidePro, or SilverTree, that allow you to maintain and track financial data and policies for insurance and estate documents all in one location. One company local to Utah is TradeWarrior, which can auto rebalance any portfolio while taking specific needs and illiquid assets into account.

Accounting Firms are our next stop. These are a finance tracking type of company for businesses and self-employed individuals. They may provide book keeping for paying employees, create budgets and financial statements for companies, and also deal with tax-returns. I suppose they are for everyone in the sense of tax-returns, many individuals go to accounting-firms for taxes, though some companies will specifically only do taxes. Beyond the actual tax returns, accounting firms can help consult on risk management and tax implications of certain operations.

The last of the seven is Discount Broker/Dealers. These are just really really low-cost Broker/Dealers. Think Fidelity, and Vanguard. Vanguard is the most notorious of all of these, as the regularly create huge market changes. Some of their funds will have expense ratios of 8 Bips, which to be simple is nearly three times cheaper than most funds to invest in.

Which ones you’ll want to work with depend on your needs, interests, comfort, and knowledge surrounding the individual companies. Many people want to lump all companies in one category as ‘good’ or ‘bad’ or ‘lazy’ or ‘smart’, but the truth is, there are losers and winners all around. You just have to find someone who is trust worthy, and has a good track record of helping people achieve their goals.

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Auto Insurance: What’s Inside The Paperwork?

Your Auto Insurance has six main parts

Part A: Liability Coverage

Part B: Medical Payments Coverage

Part C: Uninsured Motorists Coverage

Part D: Coverage for Damage to Your Auto

Part E: Duties after an Accident or Loss

Part F: General Provisions

Woah, what? Let’s break it down.

Part A: Liability

This is how much the Insurer will pay out for any damage you as the insured become legally responsible for. Most of these have Split Limits, and Example of which would be 250/500/100

These three numbers show how much the insurance company pay for what damages.

The first number is bodily injury coverage per person maximum, the second is maximum amount coverage for bodily injuries per accident and the third is property damage.

For 250/500/100 that means $250,000 in coverage per person, up to $500,000 total per accident, and up to $100,000 in property damage; Remember that these are only for amounts you as the insured are liable for.

If you are on the policy, you are insured, plus your family, plus anyone you legally allow to use the vehicle. This is why it’s often beneficial to consider a temporary insurance policy on a vehicle for another to use it, so your insurance isn’t liable if they get in an accident.

Part B: Medical

Within 3 years of an accident, insurance companies promise to cover medical and funeral expenses caused by the accident. Surgery, Dental, X-Rays, etc, can be covered here. There are limits, some place a limit of $1000 per person, others could be $10,000. This coverage is specifically for the insured person being injured. This wouldn’t be like Coverage A, where the company is paying for your damages to others, this is for damage to you and your family.

This is regardless of fault, so even if you are found at fault, you will still get this coverage on your policy.

Part C: Uninsured/Underinsured Motorists Coverage

If you get hit by another vehicle, and it’s found to be their fault then you’re fine, right? What if they have no coverage. Remember that Coverage A only is your fault to others. The point of Uninsured Motorist Coverage is that if another person hits you without insurance, your insurance company will pay for your coverage. In some states, the percentage of drivers that are uninsured can be as high as 20! (Insurance Research Council, Recession Marked by Bump in Uninsured Motorists, News Release, April 21, 2011)

The maximum amount for these is frequently the same as your Part A coverage , but your policy can say differently.

Part D: Damages to your Auto

This is the part of your policy that says “Collision” and/or “Comprehensive” coverage.

Collision: This is when your car overturns on icy roads, or you find your car fender dented after a grocery trip. These are paid no matter who is at fault.

Comprehensive: Seperated from collision because some don’t want to pay for collision insurance, a comprehensive need is when there is a fire, theft, riot, or windstorm. Additionally this covers damages for riots, for a bird or animal breaking your car, flood and hail, or an earthquake damaging your vehicle.

Part E: Your Duties

This part in your insurance policy explains what you are required to do to obtain your coverages. There are some things you should do, like call an ambulance, the police, and get the other drivers information, but requirements from insurance companies may include: Not admitting fault, Notify your insurance company within a certain time limit, cooperating with their investigation, sending in legal paperwork in a timely manner, taking a physical exam, authorizing the insurer to obtain your medical records, and taking reasonable actions to protect your vehicle from further harm after the initial accident.

Basically, you need to cooperate with your insurance, or they aren’t required to cover your losses. That’s why a lot of online companies are harder to get coverage from, because they aren’t your personal advocate that you know or have met. It’s always nice to get auto insurance from someone you’re able to contact freely, and whom you honestly feel you can trust.

Part F: General Provisions

Provisions are details about your policy that include the ways you and your insurer can end your policy and also endorsements for your policy.

A policy has 4 ways of being ended.

  • Cancellation: simply return your policy and give a written notice that you’re done, the insurer can cancel a policy too within 60 days of giving it and giving you a 20 day notice. After 60 days they can cancel your policy if you haven’t paid, have had your license suspended or revoked, or you were deceitful in any way on your application.
  • Nonrenewal: at the end of your coverage period, the insurer can decide to not renew your policy.
  • Automatic: at the end of each insurance period, if the insurer renews, but you don’t accept the renewal, then your policy will automatically end.
  • State rules: many individual states have laws that change up the first 3, or extend time periods for renewals. It’s important to check your state laws for specific auto policy termination rules.

Endorsements are modifications to your policy. The most common being a motorcycle endorsement. Many companies adjust how much physical coverage they will have, or will have huge premiums they will only reduce when you remove or change certain coverages on a motorcycle.

To get your information simply call your auto insurer and request your coverage information. Tell them you want to see all the endorsements, riders, and Parts A-F of your insurance, and not just the fact sheet, though that can be simple and helpful too.