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  • Writer's pictureStephen H Akin

Fiduciary Standard

Updated: Jun 18, 2022

Registered Investment Advisor Vs Stockbroker

If you are like many people you may not be confident in making financial and investment decisions on your own. Enter the investment professional.

There are two main categories of professionals who can help you: the Stockbroker and the Registered Investment Advisor.

They differ in two ways, A) their level of responsibility to you and B) how they get paid.

A stockbroker is an employee at a financial firm who is paid a commission based on what you invest. He/she is basically a sales person. The investment they sell you must be appropriate at the time of the recommendation but they have no further, on-going responsibility to you.

During the “know your client” conversations, the stockbroker learns many things about you and your financial needs, including

  • How old are you?

  • What is your investment time horizon?

  • Is your investment intended for retirement, down payment on a home,

your child’s future college expenses or something else?

  • What is your profession?

  • What is your annual salary?

Registered Investment Advisor, on the other hand, are fiduciaries, meaning your interests always come first. You will have a continuing relationship with your RIA. An RIA must register with the SEC or state securities regulator, depending upon the assets under management.

  • Financial Planners help individuals and corporations meet their short-and long- term financial goals. Services include asset allocation, estate planning, tax planning, retirement and more.

  • There are several methods by which you might pay an investment advisor, including a fixed fee, an hourly fee, or a percentage of the value of your assets they are managing.

Begin with a search of the firm and it's representatives with FINRA's BrokerCheck!

Here are just some of the questions that you may want to ask your perspective investment professional

Do you offer the services I need? Investment advisory practices vary widely in the services they provide. In general, they fall into one or a combination of the categories listed below.

Money managers If you need someone to manage your portfolio and do your investing, consider money managers. They: Design investment portfolios, generally consisting of stocks, bonds, and other individual securities. Financial planners If you need someone to review your situation and help with big- picture planning, consider financial planners. They: Help you look to the future and do long-term financial planning in the areas of retirement, college funding, wealth transfer, tax planning, and insurance. May not offer investing and portfolio management services. Wealth managers If you need an advisor who can handle both your investing and planning needs, consider wealth managers. They: Provide highly personalized, comprehensive financial planning as well as investment and portfolio management for high-net-worth clients. Coordinate with other professional advisors, such as attorneys and accountants, to serve more complex financial needs, which may include tax minimization, trust management, wealth transfers, real estate management, portfolio performance analytics, and more. How are you compensated? Knowing how your advisor is compensated may help you evaluate the relative objectivity of the recommendations you receive. Independent financial advisors generally work on a fee-only or fee-plus-commissions basis. Types of compensation and what they mean to you: Fee only Asset-based, hourly, or flat fees: Many independent financial advisors charge a percentage of the assets they manage for you (typically 1%–2%). This compensation method rewards your advisor for growing your portfolio. Hourly or flat fees are often associated with a specific, one-time service (e.g., developing a financial plan). The fee may vary by account size and service. In addition to these fees, you may pay other fees for execution of the trades your advisor makes and for custody of your assets. Fee plus commissions Along with an advisory or financial planning fee, some advisors may receive a portion of the commissions you pay when you buy or sell certain financial products that the advisor recommends, such as insurance policies or annuities. Commissions only Advisors sometimes receive only compensation from sales commissions on the investments they buy and sell for you. This method may give the advisor an incentive to recommend that you buy and sell more often. Wrap fees Sometimes advisors charge a “wrap fee,” which is typically a single asset-based fee for both the advice they provide and the execution of the trades they make.

Other things to consider... Why I’m looking for an advisor?

Sharing your reasons can give advisors a better understanding of your priorities.

If you’re currently investing on your own:

My portfolio has grown too complex for me to comfortably manage. My portfolio is not meeting my performance goals. I want someone else to do the day-to-day investing. I’d rather be spending my time on other things. I need help with a plan that addresses my entire financial picture. I need help with a windfall, such as money from a home sale. I’m retiring and want to create a reliable income stream. I want help with tax-efficient investing or developing an estate plan.

If you’re already working with an advisor:

My portfolio has outgrown my advisor’s expertise. I question the advice I’m currently receiving. The advice I receive doesn’t reflect my goals, situation, life stage, or risk tolerance. My advisor doesn’t seem to be listening to me.

Other reasons:

Take the next step, schedule a free consultation and learn how we can help you.

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