Advisor
vs Broker
Registered Investment Advisor vs Broker
What's the Difference?
In today's financial world, there are two general categories of advice available to investors: brokerage accounts and advisory accounts. Unfortunately, most investors don't know the difference between these two types of advice.
The reality is that Independent Registered Investment Advisors (RIAs), like Bay City Financial Services, are held to a higher standard than stockbrokers when it comes to putting investors' interests first and doing the right thing for their clients' investments.
The following information is provided to help you understand the differences between brokerage firms and independent investment advisors like Bay City Financial Services.
Financial Advisor vs Broker Table
| Broker » Brokerage Accounts | Registered Investment Advisor » Advisory Accounts | |
|---|---|---|
| Ownership | Large corporation with national presence. Brokers are employees. | Locally owned and operated. Independent small business. |
| Account Placement | Limited to Broker parent company. | May choose account platform that best fits client needs. |
| Breadth of Offerings | Vast, but may direct investment to in-house proprietary products. | Vast and open-architecture platform where only best investments are utilized. |
| Type of Professional | A broker is an intermediary between a buyer & seller. They arrange transactions suitable for clients. | A registered investment advisor manages relationships from a holistic perspective across multiple financial topics. |
| Investment Decisions | The broker typically relies on their parent company for recommendations and portfolio allocations. | The registered investment advisor is the investment professional and clients have direct access to the decision maker. investments and allocations decisions are made in a coordinated effort between advisor & client. |
| Legal Standard | FINRA conduct rule limits recommendations to suitable investments. | SEC Requirement of a Fiduciary Standard: RIA Must Act in Best Interest of Client. |
| Compensation | Commissions, Loads, 12b-1s, Finder's Fees, Sales Bonuses. Based on the Type of Securities and Number of Trades | Management fee based on assets under management |
| Disclosures | Limited disclosure requirements. | Full Disclosure Requirements as Required by the SEC, fidicuary law, state laws and Uniform Prudent Investor Act. (ADVII) |
| Proprietary Products | Many brokers offer their parent company's investment products and receive extra compensation for doing so. | No proprietary products. |
| Education | Typically a sales background, but more experienced brokers have investment education. | An investment education and/or financial planning background. Not a salesperson. |