How Is A Registered Investment Advisor Different From A Broker?

Individuals who provide financial advice to the public use a wide variety of seemingly synonymous titles, such as financial planner, financial consultant, investment advisor, wealth manager, etc.  However, they are not all held to the same legal standards of conduct. 

The Securities and Exchange Commission and State Securities Agencies classify people who offer financial products and advice into two major categories –

  • Brokers – A broker acts simply as an agent, effecting transactions in securities for others.
  • Investment advisors – An investment advisor is anyone who is in the business of giving advice on investments and securities to clients for compensation.

Brokers are exempt from registration as an investment advisor if giving advice is incidental, not primary, in their business and no special compensation is paid for such advice.

An Investment Advisor is required by the SEC or State (depending on the type of registration) to act as a fiduciary, that is to say, on behalf of another.    Registered Investment Advisors must put the interests of their client ahead of their own.  The recommendations of an Investment Advisor must be those that he or she believes are the best choices for the client.  By law, an Investment Advisor must disclose to you, in writing, their qualifications, all sources of income, possible conflicts of interests and any disciplinary action taken against them by the State Securities Agencies or SEC even if you do not ask.  On Course Financial Planning is a Registered Investment Advisor currently registered in the state of Washington.

  On the other hand, a broker is not held to a fiduciary standard, acts simply as a salesperson, and need only recommend suitable investments and execute trades promptly.   A broker is not required to notify you of all payment incentives, conflicts of interest, disciplinary history, or qualifications unless you ask..