Broker Dealer Vs Investment Advisor


What Services Does An Investment Advisor Provide


Investment advisors can offer a wide range of services, including items like debt management, budgeting, retirement and healthcare planning, and investing. Typically, the investment advisor practices discretion in clients accounts, making investment decisions to buy, sell, or hold for the client.

Investment advisors also practice account monitoring. Account monitoring typically happens at set intervals decided by both the agent and the client. Account monitoring allows an IA to watch your portfolio and make changes based on highlighted strengths and weaknesses.

You Come First No Matter What

Our fiduciary duty sets us apart from the rest. A fiduciary is someone that manages money for the benefit of another and is bound by law to place the interest of its beneficiary first and foremost. You would naturally think that anyone giving financial advice would be a fiduciary, but youd be wrong. Brokers, registered representatives, and most people that call themselves financial advisors are not actually fiduciaries even though they are engaged in marketing themselves as financial advisors. In reality, only a small proportion of financial advisors are federally or state-Registered Investment Advisors and most financial advisors are actually considered Broker-Dealers by the Securities and Exchange Commission .

Comparing The Standard Of Conduct: Broker

The SECs standard of conduct for broker-dealers under Regulation Best Interest became effective on June 30, 2020. While registered investment advisers always have been subject to a best interest standard of conduct , the SECs clarification of that standard in its Interpretation Regarding Standard of Conduct for Investment Advisers has been in effect since July 12, 2019. There are similarities in these two standards, but there are significant differences as well. Here is how the two standards compare:

General Disclosure Obligation under Reg BI and RIA Interpreteation

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You Should Contact A Registered Investment Advisor For Your Investment Activities If

A registered investment advisor is a better fit if:

  • You Have a Lot of Money to Invest. If you have a large portfolio with hundreds of thousands or millions of dollars of assets, it could be difficult for one person to manage. As a result, an investment advisor is going to be your best bet.
  • Youre Not Familiar With the Stock Market. The stock market is a complex machine, and if youre not familiar with what makes that machine run, it may be best to seek the help of an investment advisor.
  • You Would Rather Let a Pro Take Control. If youre not comfortable with risking your hard-earned dollars on your understanding of the stock market, its best to let a financial professional take the reins.
  • You Dont Have the Time to Devote to Research. To be a successful investor, its important that you perform due diligence, or detailed research, before making any investment decisions. If you dont have the time for this research or the expertise to perform it, it may be best to seek the help of an investment advisor.

Key Differences In Testing And Licensing

Independent Broker

Investment advisers and brokers also have different training and licensing requirements. Brokers have to pass the Series 7, otherwise known as the General Securities Representative Exam the Series 7 also acts as a precursor to further exams in the securities industry. On the other hand, future investment advisers must pass the Series 65 exam, which is a requirement before they can dispense financial advice for a fee.

An additional distinction between the Series 7 and the Series 65 is that only the Series 7 requires an individual to be sponsored by a firm prior to enrolling for the test. The Series 65 is also often used by certified public accountants to enter the investment advisory business. Unlike chartered financial analysts and certified financial planners , the CPA designation does not meet the prerequisites to have the Series 65 exam waived.

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What Does A Broker

A broker-dealer buys and sells securities on behalf of clients or independently. Most use the term broker-dealer, referring to stock brokerage, since most of these dealers occupy the role of investment agents.

Broker-dealers use wrap accounts, which are investment portfolios increasing in popularity, to select the right investments for their clients. Besides collecting a commission for each security they sell, brokers can also charge the client an annual fee or a flat quarterly fee. They also focus on making well-informed decisions on behalf of their clients because they can make a significant profit from security sales.

The New Account Agreement

Before any investing takes place, youll sign a new account agreement with your LPL financial professional. Dont sign it unless you thoroughly understand and agree with the terms and conditions it imposes on you. Dont rely on verbal representations from your financial professional that arent contained in the agreement.

To complete the agreement, youll need to make some critical decisions, such as:

1. Who will control the decision-making?

You can control the investment decisions made in your account or give discretionary authority to the financial professional to make them for you.

Discretionary authority allows a third party the financial professional to make investment decisions based on what he or she believes is best for you. The financial professional doesnt have to consult you regarding the price, type of security, amount, or when to buy or sell. Dont give discretionary authority to a financial professional or anyone else without considering whether this arrangement is appropriate for you.

2. How much risk should you assume?

Youll also need to specify your overall investment objective in terms of risk. Risk is the possibility of losing some, or all, of the money you invest. Be sure that the risk level you choose accurately reflects your investment goals.

A financial professional will also talk to you about other forms you may need to complete.

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How Can I Tell If My Financial Advisor Is A Fiduciary

For client-facing roles working for Registered Investment Advisors the most common title is Financial Advisor. Guess what the most commonly used title for Brokers is? You guessed itits also Financial Advisor.

How is the consumer to know whether they are working with someone in a sales-oriented role or an advisory role? They dont. The SEC allows the title of Financial Advisor for dual-registrants as long as they disclose that they may act in multiple different capacities, either as an advice-giver in the clients best interest, or as a salesman. I can tell you from personal experience that very few people read the disclosures given to them and, almost no one who does read them understands them.

Recent Sec Rules Make It Difficult To Know Who’s A Fiduciary Financial Advisor

Broker vs. Registered Investment Advisor

The SEC, the organization in charge of regulating the financial services industry, recently implemented a controversial set of rules and interpretations regarding the financial advice given by brokers. This new set of rules is referred to asRegulation Best Interest, or Reg BI, and was intended to make it simpler for consumers to know if the person advising them is working in their best interest however, many fiduciary firms believe the new rules muddied the water and have allowed more leeway for broker-dealers looking to work in their own interest.

Since the release of this new rule, XYPN, run by well-known Financial Advisor blogger Michael Kitces, seven states, and the District of Columbia have each filed lawsuits against the SEC over these new Reg BI rules. The rules are complicated and nuanced, but you can read a summary published on Barrons by the Investment & Wealth Institute here.

The 4 major obligations all financial professionals must follow to comply with the SEC are:

While these rules are required to be followed in order to comply with the SEC, the flexibility in them allows for different ideological interpretations among different types of advisors.

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What Is A Broker

A broker-dealer, often referred to as a brokerage or broker, is not there to provide investment advice. In fact, doing so would be going against regulations. Instead, broker-dealers are the companies that employ brokers and can be compared to the used car lots of the stock market. Their role is to wheel and deal in stocks and other tradable assets. Well-known broker-dealers include household names like Fidelity Investments, Charles Schwab, and TD Ameritrade.

Because the broker-dealer doesnt provide advice to retail investors, they have no financial stake in your success as an investor, with the exception of robo-advisor-broker-dealer companies like Betterment and Acorns, which have separate divisions acting as the investment advisor and broker-dealer under one brand.

The used car comparison was made for a reason. Prior to the introduction of the Financial Industry Regulatory Authority , unsavory moves made by broker-dealers played a major role in the development of the Great Depression. Although heavy regulation has cut down greatly on fraud among broker-dealers, its important to remember that unless youre working with a robo-advisor that acts as its own broker-dealer, chances are that your brokers interest is in generating a profit, rather than your investing success. A brokers primary goal is to sell more stock, regardless of what happens to those investments after the sale.

Broker Dealer Vs Ria: Types Of Financial Advisors & Which Is Right For You

With a constantly-increasing list of financial firms in the Houston area, its no wonder that many consumers struggle to pick the right one. Between Financial Advisors, Financial Planners, Investment Advisors, Broker-Dealers, and dually-registered firms, there are a plethora of choices for wealth management professionals that each has its own fees, investment philosophies, pros, and cons.

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What Is The Fee

As was briefly mentioned, one more compensation model exists the fee-based model. In this model, advisors can still receive commission for the sale of certain types of investments but also charge an asset-based fee for their services. Both BDs and RIAs can utilize this payment model. This can help to align advisor interests with client interests but does not completely succeed in doing so.

Ria Pros & Cons For Advisors

Independent  Weatherhelm Capital Management

Registered Investment Advisors are required to register with the SEC and are held to a fiduciary standard of care for their clients financial well-being. This means that they work for the client, not for an employer. All of the decisions an RIA makes need to be framed in that context.

For advisors, the primary advantage of being an RIA is independence. RIAs can choose their own fee structure, run their business as they see fit, and can expand their reach beyond specific geographical areas. This is a big advantage in an ever-expanding digital landscape.

Of course, owning your own business comes with additional responsibilities. Theres overhead and software costs to consider. RIAs are required to pay for their own licensing and compliance assistance. Marketing costs are not subsidized by an employer either.

RIAs are also limited in their financial product offerings. They cannot sell commission-based products such as variable annuities and other insurance products. This eliminates a potentially lucrative revenue stream that affiliation with a broker dealer could otherwise offer.

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What Does An Investment Adviser Do

An investment adviser is responsible for conducting investment analyses and provides recommendations to investors. These professionals advise clients on how to invest, and after choosing the right investment plan, they guide clients on funding these projects and ensure that they achieve their objectives. Most registered investment advisers coordinate with other investment experts, such as estate advocates, philanthropic planners and CPAs to determine the best financial path for their clients.

Federally Registered Investment Advisers

In general, RIAs that manage $100 million or more in client assets must register with the U.S. Securities and Exchange Commission . While the process is not as involved as registration as a broker-dealer, it can be complex.

As of 2019, 12,993 firms were federally-registered serving over 43 million clients most firms were small, with 88% having fewer than 50 employees. FINRA-registered stockbrokers, who may also provide advice but are not fiduciaries, dropped to 3,596 firms and 4,720 individuals, some of whom are “wirehouse brokers”.

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Ria Vs Broker/dealer: Pros & Cons For Advisors

RIAs are free to charge their own fees and manage money as they see fit. Broker/Dealer representatives are bound by the rules of their employer or Broker/Dealer, but they have a wider variety of financial products to offer to their clients. Which of these is the right choice for you?

In this article, weve outlined the pros and cons of RIAs and Broker/Dealers for advisors. Weve also included a section on independent broker dealers , an increasingly popular choice that offers a combination of both worlds. With 2021 on the horizon, this is a good time to review your options.

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Choose Between Advisory And Brokerage Services

Broker-Dealers and Investment Advisers

One of the first decisions youll need to make is how you want to work with LPL Financial. LPL Financial is a registered investment advisor and a broker/dealer, which means that an LPL financial professional can offer you both investment advisory and brokerage services.

Make sure you understand what each type of service entails when determining which will best help you pursue your investment goals.

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Brokerage And Investment Advisory Relationships: Understanding The Differences

Raymond James Financial, Inc. and its subsidiaries, including Raymond James & Associates, Inc., Raymond James Financial Services, Inc., and Raymond James Financial Services Advisors, Inc. form a diversified financial services company, providing services throughout the United States, Canada, and overseas. We are registered with the U.S. Securities and Exchange Commission as a broker-dealer and an investment adviser, offering both brokerage and investment advisory services to our clients.

Working with their financial advisors, our clients determine the services that are appropriate for them in light of their financial goals and investment objectives. Depending on the services you request, we serve in our capacity as a broker-dealer, investment adviser, or both. It is important that you understand the differences between brokerage services and investment advisory services when deciding which relationship or combination of relationships fit your investment needs.

This disclosure highlights important distinctions between brokerage and investment advisory accounts, including applicable laws and our obligations and responsibilities in servicing such accounts. These obligations and responsibilities are more fully described in our applicable agreements with you. You should review this disclosure thoroughly and discuss it with your financial advisor.

The Takeaway On Brokers Vs Investment Advisors

Choosing between a stockbroker and an investment advisor is a highly personal matter, based on a money management clients unique financial needs.

In broad terms, choosing an investment advisor means youre signing up for a more comprehensive money management experience, which will likely result in higher costs and fees.

Selecting a stockbroker usually means youre getting more limited money management services, depending on the type of brokerage services offered.

Making a qualified choice between an advisor and a broker requires thorough research and careful planning and a candid look at your own financial and investment needs.

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How Investment Advisors Make Money

Investment advisors may take a couple of different approaches when collecting payment for their services. Some may collect fees based on different products. Others may offer a flat rate. Most commonly, though, an IA will take a cut based on a percentage of your assets.

As a clients assets grow, so does that of the firm or the agent, which could result in a conflict of interest. The more money or assets deposited in an IA account, the more fees charged. An advisor will make their percentage of assets whether the client makes or loses money. The advisor will make their percentage even if no transactions are completed within the account.

Investment Advisor Vs Stockbroker: How Do You Choose


Theres a ton of cash tied up in the global stock market and knowing where to get help investing their money is a big advantage for Main Street investors.

All told, global stock exchanges hold a capitalization of $85 trillion in U.S. dollars at the beginning of 2020, although that figure is taking a monumental hit amid the coronavirus crisis. In 2009, that figure stood at just $25 trillion.

With all that money on the line, it pays for regular investors to know where to find the right money manager to steer them to portfolio success. Most often, that means choosing between an investment advisor and a stockbroker, who each bring some unique talents to the market investment table.

Which one you choose can have a significant impact on your investment portfolio and your overall financial health going forward.

Heres a deep dive into the realm of both the registered investment advisor and the stockbroker. Lets see which one makes sense for your unique investment needs.

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Investment Adviser Vs Broker: What’s The Difference

Kirsten Rohrs Schmitt is an accomplished professional editor, writer, proofreader, and fact-checker. She has expertise in finance, investing, real estate, and world history. Throughout her career, she has written and edited content for numerous consumer magazines and websites, crafted resumes and social media content for business owners, and created collateral for academia and nonprofits. Kirsten is also the founder and director of Your Best Edit find her on LinkedIn and Facebook.

How A Stockbroker Gets Paid

There are significant variances on how much a broker can charge clients, based on the level of services they offer.

For example, the commission varies between discount and full-service stockbrokers.

  • A discount brokerage firm typically charges on a limited basis usually for executing a trade for a client for a nominal fee. Discount brokerage services often charge as little as $5-to-$10 for trade execution, which includes services for holding the stock on the clients behalf and other operational services.
  • A full-service brokerage fee will charge more for added services, like for full-service money management, much like a financial planner. Full-service brokers may charge $100-and-up for trade execution, but costs accumulated for through market research and regular meetings with clients added into the mix.

Brokerage clients will also likely be asked to make a minimum deposit in a brokerage account before they can start levering trading services. Depending on the level of service youre getting from a broker, that down payment can be as little as zero for a discount broker or $10,000 for a full-service broker.

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