We will take a look and examine the difference between a financial professional who is a broker and one who is an investment advisor/fiduciary. You will then be able to determine if your “advisor” is working for you or themselves.
We are going to look at some of the similarities and differences between the investment advisor (also commonly called the financial advisor) and the broker.
First, we will start by looking at some significant key differences:
- Investment or financial advisors are paid a flat fee or percentage of the assets they have under their management to advise clients on securities and/or manage client portfolios.
- Brokers are paid commissions to execute trades, buy and sell assets for clients, or place a client into a specific type of financial product. Their compensation is dependent upon the sale of a security or financial product.
The investment advisor works on a fee-based system that allows them to give unbiased and transparent investment and financial advice, catered to individual client needs, goals, and objectives. Investment advisors will also often manage a variety of investment accounts for their clients.
Investment advisors are also held to a much higher legal standard than brokers. In the United States, all registered investment advisors must adhere to the Investment Advisers Act of 1940.
Investment advisers and brokers have different training, testing, and licensing requirements. Brokers take their exams through FINRA, and investment advisors take their exams through the NASAA.
Brokers typically take the Series 6 and/or Series 7 exam depending on the types of financial products they will offer their clients. Alternatively, investment advisers must pass the Series 65 Uniform Investment Adviser Law Examination.