A financial advisor can be the key to unlocking a secure financial future, but not all advisors offer the same services and expertise. For example, you may have encountered terms like “broker-dealer” and “registered investment advisor.” While both of these titles refer to experts in the financial field, they play distinct roles when it comes to your investment strategy.
What Is a Broker-Dealer?
Broker-dealers are firms or individuals licensed to buy and sell securities on behalf of their customers or for their own account. They can either “broker” transactions (acting as an agent for their customer) or “deal” transactions (buying or selling for their account).
While broker-dealers can range from small agencies to large firms, they generally fall into two categories. Discount broker-dealers primarily focus on executing trades, while full-service broker-dealers offer a more comprehensive range of financial services. No matter the scope of their offerings, broker-dealers must comply with the Financial Industry Regulatory Authority (FINRA), which ensures they operate fairly and honestly.
What Are Their Key Responsibilities?
As a customer, you can expect your broker to act as the middleman between you and the market. They are equipped with the tools to swiftly execute trades, can offer insights into market trends, and, in the case of full-service brokers, can make personalized recommendations based on your objectives. They also oversee the administrative and custodial aspects of your securities, providing you with regular account statements and acting as your point of contact for questions or concerns about your investments.
Why Choose a Broker-Dealer?
Regulation Best Interest (Reg BI): Broker-dealers are required to follow Reg BI, which mandates that brokers must always act in the best interest of retail investors when making product recommendations.
Product Range: Broker-dealers typically have access to a diverse range of investment products. Whether you’re interested in stocks, bonds, mutual funds, or more niche investment opportunities, broker-dealers offer a wide selection to cater to different investment strategies and appetites.
Potentially Lower Costs: Full-service broker-dealers offer services beyond just buying and selling, an advantage that doesn’t usually come cheap. However, for investors willing to manage their own trades, discount broker-dealers can be a more cost-effective option.
What Is a Registered Investment Advisor?
A registered investment advisor (RIA) is a financial professional or firm that offers guidance about securities to their customers. They are typically registered through a state securities regulator or the Securities and Exchange Commission (SEC) and their employees must typically pass specific exams, such as the Series 65, to offer investment advice. While they can execute trades on your behalf, their primary duty is to provide personalized investment advice that best serves your needs and financial situation.
What Are Their Key Responsibilities?
When you work with an RIA, you can expect to receive personalized financial advice tailored to your specific needs and goals. They’ll evaluate your current financial situation, determine your risk tolerance, and work with you to craft an investment strategy to achieve your short- and long-term objectives. Beyond designing and implementing your plan, they regularly monitor and adjust your portfolio, provide regular reports, and offer guidance on investments in relation to other financial matters, from retirement planning to tax considerations.
Why Choose an RIA?
Fiduciary Standard: RIAs have a fiduciary duty to their customers. This means they must always act in their customer’s best interest, regardless of how it impacts them or their own income. They’re also required to disclose any potential conflicts of interest.
Fee Structures: In most cases, RIAs charge a fee based on a percentage of assets under management. This means their compensation is directly tied to the growth of the customer’s portfolio, inherently aligning the advisor’s interests with the success of the customer’s investments. Alternatively, they sometimes charge a fixed or hourly fee, but they must still act in your best interest.
Service Offerings: RIAs take a holistic approach to your investment strategy, considering your long-term goals and complete financial situation. In many cases, they’ll also provide other financial services, such as financial planning and tax strategies.
As a Registered Investment Advisory firm, we’re here to meet all of your financial needs. Reach out to learn more about our comprehensive financial planning and portfolio management services.
