Difference Between a Broker and Financial Advisor

When you are investing, many people assume you need a broker to advise you. However, this is not true. A registered investment advisor is a type of advisor who is compensated differently than a commission-based stockbroker. Although either an investment advisor or a broker may help you make wise investments and save for the future, their pay structures and licensing are different in important ways.

Registered investment advisors are legal fiduciaries of their clients’ wealth. They are required to act solely in the best interest of their client. They are not allowed to sell financial products or make investments that benefit themselves over the needs and wishes of a client. RIAs must disclose all information regarding their compensation and their decision-making to the client. Brokers are not held to the same level of fee transparency as registered investment advisors.

Brokers, who are also called registered representatives, are only required to make decisions based on what is considered “suitable” for the client’s financial profile. This does not mean that a broker may not act in your best interest, however, brokers have the freedom to sell you financial products which pay them the most in commissions, as long as the products are not unsuitable. Brokers are registered representatives of their employers. Whatever decisions they make, they will be accountable to the broker-dealer first, and you second.

A key difference between brokers and registered investment advisors is how they are paid. Brokers make their money primarily on commissions on the accounts they manage. They may have a conflict of interest if they advise you to hold a stock for ten years because they will not earn a commission for giving you that advice. Registered investment advisors, on the other hand, are paid a set fee that is a percentage of assets managed, or fixed dollar amount per year. An RIA has no conflict of interest in advising a client to hold a stock for ten years because his or her advisory fee will increase if the stock value increases. There is no commission incentive.

It’s important to know both the pros and cons of working with a registered investment advisor versus a registered representative. At Price Wealth Management, we are registered investment advisors who promise to always act in the best interest of our clients. Talk to an advisor by calling us at 772–888- 3757 or contact us here.