RIAs and Bonds

Part
01
of two
Part
01

RIAs and Bonds

Registered investment advisers work with the principals, the state (obligee), and surety authorities to buy and sell bonds. Majority of surveyed RIAs think that bonds will decrease in 2019 (45%). We have outlined our key findings below.

RIA Bond Buying Process


1) The Registered Investment Advisor or investment adviser sends an application to Surety Bond Authority. Here is the registration packet for an investment adviser for the state of Pennsylvania.
2) Surety Bond Authority requests a list of required documents to qualify and register the investment adviser for the bond purchase. These include:
— RIA's credit score
— A copy of the Bond form

3) The application will be evaluated by an expert underwriter.

4) Once the application is approved, the bond is issued and sent to the registered investment adviser.

RIA BOND SELLING PROCESS

  • According to Financial Industry Regulatory Authority (FINRA), RIAs are responsible for managing accounts including buying and selling based on a previous agreement with the investor. Such transactions do not need individual approval.
  • The RIA provides a written document that outlines the investment policy applicable to individual account as well as the investment method used by the adviser.
  • FINRA notes that RIAs usually combine purchases for several clients at a time by trading larger blocks to attain a more desirable price.

HELPFUL FINDINGS


RESEARCH STRATEGY

We were unable to find the detailed process for Registered Investment Advisors (RIAs) buying and selling municipal or corporate bonds. However, we were able to provide a general overview of the buying and selling process of bonds as provided by surety authorities and FINRA. We found that the exact buying and selling process is not described by any of the official and trade organizations we researched including the Municipal Securities Rulemaking Board (MSRB), Surety Bond Authority, Financial Industry Regulatory Authority and others. No RIA agencies also provided a detailed step-by-step guide of the buying and selling process. However, the trade organizations we researched provided an overview of the buying and selling process for bonds in general, which we have provided above.

We also did not find any preexisting information on the details requested such as frequency of bond purchase, sources, types of bond purchases, pricing, and selling process. We implemented the following processes:

STRATEGY 1:

  • Our first strategy was to look for firsthand information from RIA agencies and companies. We looked at corporate websites, blogs and other publications but found no detailed disclosure of their metrics and statistics regarding buying and selling of bonds. We also found no secondhand accounts of the buy and sell process from interviews of company officials and advisers. Instead, we found only invitations for inquiries for interested clients.

STRATEGY 2:

  • Next we looked for professional profile studies of RIAs such as the 2017 Evolution Revolution — A Profile of the Investment Adviser Profession by the Investment Adviser Association (IAA) to see if these included statistics around bond product transactions including municipal and corporate bonds. No information on the topic was found as well; most of the data featured percentages on client type, compensation, custody of assets, and other general areas. Data on bonds were mostly lumped together with securities and other broader funds, with no specific data such as requested.

STRATEGY 3:

  • Lastly we looked for proxy data points from recent RIA surveys and reports that could be used to triangulate the requested details. We looked into surveys including the RIA Survey & Ranking 2018, TD Ameritrade Institutional 2019 RIA Sentiment Survey and the 2019 Advisor Authority Study among others. We found no specific data on frequency of bond purchase, sources, types of bond purchases, pricing, and selling process; instead the data focused on RIA's general concerns, priorities and general statistics such as age, location and client types.

Therefore, we gathered all helpful data related to bond products from these sources and provided these as helpful findings above. We are presenting this as a partial client update as we have provided a general overview of the buying and selling process of bonds as described by surety authorities, Municipal Securities Rulemaking Board (MSRB), and Financial Industry Regulatory Authority (FINRA). We have outlined these and included all helpful findings from recent RIA surveys as well above.
Part
02
of two
Part
02

RIAs and Bonds: Software Tools

Examples of software tools that can assist Registered Investment Advisors (RIAs) in the process of buying and selling of municipal and corporate bonds are emX by eMoney Advisor, FactSet, Macroaxis, and Captools. Below are the details of our findings.

EMX BY MONEY ADVISOR

  • This is a "wealth-planning software" for financial advisors that can provide organization, transparency, and accessibility to enhance customers' financial records.
  • Also, emX is a wealth management technology that helps to drive revenue, enhances the relationship of investment advisors with their clients, minimize risks within a firm, and build trust.

EMX Assistance IN BUYING AND SELLING OF MUNICIPAL OR CORPORATE BONDS

FACTSET

  • FactSet is a software for investment management built for RIA or investment manager. This software focused majorly on financial data analysis such as bonds.

FACTSET Assistance IN BUYING AND SELLING OF MUNICIPAL OR CORPORATE BONDS

  • This software has data platform that provides analysis on how to select fundamental stock. It also helps to research on how to get the best benefit from investing.
  • The YouTube introduction shows a dashboard with stock that has been purchased, its growth, and data information to select from, and the best stock to purchase now from various industries.

MACROAXIS WEALTH MANAGEMENT PLATFORM

Macroaxis Assistance IN BUYING AND SELLING OF MUNICIPAL OR CORPORATE BONDS

  • This platform has Robotic Portfolio Origination, the advanced analytical tools from the analyst and expert consensus, which helps to provide signals to sell or buy stocks.

CAPTOOLS

  • This platform is designed for investment managers because it offers investment record keeping, performance measurement, and portfolio management reporting tool.
  • This platform provides a "scalable multi-user portfolio" management system that can be used on computer to facilitate RIA compliance with SEC record-keeping requirements.

CAPTOOLS Assistance IN BUYING AND SELLING OF MUNICIPAL OR CORPORATE BONDS

  • Captools provides advisors the complete set of data on ROI or return of investment measurement with report on performance for excellent presentation to clients.


Research Strategy

In order to address the research request concerning the software tools that assist Registered Investment Advisors (RIAs) in the process of buying and selling of municipal or corporate bonds. The research team explored through various leading software platforms for businesses such as Capterra (a reputable review platform for software). Here we were able to retrieve the best investment management tools in 2019. We sorted the best investment management tools that was built for investment managers with stocks/bonds features and with corresponding abilities to assist in buying and selling of municipal or corporate bonds. Also, further research would help to garner additional tools with similar characteristics related to the ones identified in this research request.







Sources
Sources

From Part 01
Quotes
  • "You have to send an application to us. If you are ready to do that now, you may APPLY HERE!"
  • "After we have received your application, we will ask you to submit the necessary information needed for the underwriting process. These are the following: 1) Your credit score 2) Your copy of the BOND FORM, whether you’re an investment adviser or a broker-dealer."
  • "An expert underwriter will carefully evaluate these to attain the best credit decision possible. To avoid any delay, the information that you should submit should be organized and concise."
  • "Your surety bond will be issued and sent to you!"
Quotes
  • "An initial application for registration as an investment adviser in Pennsylvania must be filed through the Investment Adviser Registration Depository (IARD). "
  • "If the applicant is not already a participant in the IARD, participation must be initiated before applying for Pennsylvania registration. "
Quotes
  • "A registered investment adviser (RIA) manages accounts and makes purchases and sales in accordance with an investor's agreed-upon strategy, without getting individual approval for each transaction. "
  • "When you hire an RIA, you should get written information that explains both the investment policy that applies to your account and the investment process used by the RIA. "
  • "RIAs often combine purchases for several clients by trading in larger blocks to obtain a better price. "
  • "RIAs usually charge a management fee to account holders. Some advisers charge depending on the interest rate environment and the associated interest earnings."
Quotes
  • "The investment advisor surety bond is an agreement between three parties: the principal, the investment advisor; the obligee, the state; and the surety, the company who is providing the bond, backing it financially, and vouching for the credibility of the advisor"
  • "If a financial advisor violates state or federal regulations or provides bad investment advice because they acted dishonestly (just providing bad advice alone isn’t enough), obligees can make a claim against the investment advisor bond. "
Quotes
  • "Purchasing government bonds such as Treasuries (U.S.) or Canada Savings Bonds (Canada) works slightly differently than buying corporate or municipal bonds. "
  • "Many financial institutions provide services to their clients that allow them to purchase government bonds through their regular investment accounts. "
  • "In the U.S., for example, Treasury bonds and bills (T-bonds and T-bills) can be purchased through TreasuryDirect. Sponsored by the U.S. Department of the Treasury Bureau of the Fiscal Service, TreasuryDirect lets individual investors buy, sell and hold Treasury Bills, Notes, Bonds, Inflation-Protected Securities (TIPS), and Series I and EE Savings Bonds in paperless form via electronic accounts. "
Quotes
  • "See infographic* RIAs' Primary Custodians"
  • "According to TD Ameritrade, 30% of RIAs are hiring younger advisors, and 24% hire college interns."
Quotes
  • "Year over year, increased pressure to "sell" products that might not be right for clients is also cited among the top three factors for negative sentiment about the impact of M&A (32% in 2019, 39% in 2018, 37% in 2017, 36% in 2016)."
  • "In fact, among RIAs and fee-based advisors, 56 percent anticipate that market volatility will increase over the next 12 months and 56 percent are concerned about a U.S. Bear Market over the next 12 months, followed closely by 54 percent who are concerned about a U.S. economic recession over the next 12 months."
Quotes
  • "In 2017, 7,321 advisers (60.1 percent) reported that they are not actively engaged in any other business other than rendering investment advice about securities, a proportion that is relatively unchanged compared to 2016."
  • "Investment advisers continue to find states such as New York, California, Texas, Massachusetts, and Illinois to be desirable locations for their main offices, ostensibly resulting from proximity to financial markets, growing financial hubs, and large population centers. "
  • " 10,517 of registered investment advisers (86.4 percent) reported no disciplinary history at all, which is comparable to last year, when 10,273 advisers (86.7 percent) reported no disciplinary history."
Quotes
  • "Private client brokers may also sell mutual fund shares or they may be recommended by an RIA. Full-time professional investment managers select and monitor the credit quality of the bonds held in a municipal bond mutual fund. "
  • "Typically, participating in a mutual fund provides a naturally diversified municipal bond portfolio at a lower cost than purchasing individual bonds. Investors generally receive the tax-exempt interest from such funds. "