Registered Investment Advisors and Stock Brokers: What is the Difference?

October 15, 2020 - 5 minutes read

Registered Investment Advisors and Stock Brokers: What’s the Difference?

Registered Investment Advisors and Stock Brokers are two different professions. What they do and their responsibilities to you are also distinctly different.

Registered Investment Advisors and Stock Brokers are quite different

Registered Investment Advisors and Stock Brokers are quite different

Here’s an easy way to understand the differences between a Stock Broker and a Registered Investment Advisor: Stock Brokers execute transactions for you. Investment Advisors provide advice and manage portfolios for you.

What is a Stock Broker and What Does a Stock Broker Do?

Registered Investment Advisors and Stock Brokers: What's the Difference?

Stock Brokers execute purchases of financial products for you.

A Stock Broker is someone who earns a commission purchasing financial products for someone else. They receive a commission on every transaction they make for clients. While Stock Brokers are allowed to provide advice to their clients, the relationship is primarily based on executing trades for the clients.

Because Stock Brokers’ incomes are based on transaction commissions, they have incentive to generate as many transactions as they can. As a result, this could create situations in which the Stock Broker is operating in his or her best interest, not yours. In fact, Stock Brokers can place their interests above yours; they have no legal obligation to protect you.

See also: What’s the Difference Between an Investment Advisor and a Financial Planner?

How Are Registered Investment Advisors Different?

Registered Investment Advisers (RIAs) don’t sell financial products. Instead, they offer investment and planning advice. RIAs will carefully review your entire financial situation. They will talk with you about your needs, goals, and risk tolerance and how it all fits in with your existing income streams and assets. With your situation in mind, RIAs will then select the right investment vehicles to reach your specific goals. When appropriate, they will use the Stock Broker to execute trades for your portfolio.

Registered Investment Advisors create investment plans

Registered Investment Advisors create investment plans.

RIAs also collaborate with other financial professionals, such as your CPA, to make sure that everything will work well together.

Most RIAs charge a percentage of the assets under management. You will want to work with fee-only advisors, who do not sell any financial products. Their incentive is to provide the best options for your investment goals. They earn their money by managing your assets, not by finding new things to sell you.

What’s the Difference between Fiduciary and Suitability?

Because they act as Fiduciaries, Registered Investment Advisors are ethically and legally required to act in your best interest at all times. This requirement is the biggest difference between Advisors and Brokers. Because Brokers are not legally bound by this same fiduciary requirement. Instead, Stock Brokers are held to the Suitability Standard. This rule requires that a Stock Broker make recommendations that are “suitable”, based on a client’s personal situation. However, the Suitability Standard for Stock Brokers does not require that the advice be in the client’s best interest.

Talk with Registered Investment Advisors

If you are actively investing, or thinking about starting, you’ll want to visit with Registered Investment Advisors. To learn more, click here to download our free eBook 3 Things an Investment Advisor Should Do for You”.

3 Things an Investment Advisor Should Do for You

Anatoliy Cherevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC, with over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Cohen & Steers. Anatoliy holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and CFA Society Seattle. 

Anatoliy Cherevach






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