October 3, 2022
Investment terms are often thrown around as interchangeable. While some words like stock and financial asset actually are interchangeable, others are not. One notable example is how investment advisor and broker are used to mean the same thing, but definitely should not.
You might think investment advisors and brokers are the same, but they have very different roles. In the simplest terms, investment advisors advise and brokers sell. Of course, it is a bit more complex than that. A broker earns a commission on the sale of an asset and an investment advisor earns money by giving people investment advice.
A broker is a specific designation that refers to someone who is licensed by the Financial Industry Regulatory Authority, or FINRA, to buy or sell securities. Brokers must follow the suitability standard, which means that an investment or product need only be suitable for an investor’s needs while advisors follow the fiduciary standard, which requires them to act in their clients' best interests at all times.
Brokers can choose to be fiduciary or not while investment advisors are obligated by law to act as a fiduciary, mainly because fiduciaries can independently make decisions about your portfolio. They can make trades in your name without calling you while brokers must have their client’s express permission to buy or sell.
A broker is typically paid a commission based on each buy or sell transaction for an asset. An investment adviser is usually paid a fee for their advisory services or percentage of assets under management.
In many cases, a firm will register as a broker and an investment adviser, as the two industries usually work together. As a retail investor, you may be charged fees for each service provided. In determining which would work best for you, it may be helpful to determine what you would like them to do. Do you wish to purchase securities and do your own research on investments? If that’s the case, a broker may be what you are looking for. Or do you want someone else to do the research and pass along their advice, letting you make your own securities purchases? That’s an investment advisor’s role.
The role of a broker has changed dramatically in recent years. Prior to the advent of online brokerage firms and their do-it-yourself trading, investors who wanted to buy or sell assets had to call a broker for help making transactions.
Both roles are regulated by the Securities and Exchange Commission. The SEC oversees investment advisors and brokers. Brokers almost always must register with the Financial Industry Regulatory Authority (FINRA).
It helps to investigate investment advisors and brokers prior to working with them. Both the SEC and FINRA maintain a database where individual investors can find some basic background information on things like registration status, employment history and disciplinary actions (if any).
For investment advisors, visit the SEC’s Investment Adviser Public Disclosure Database. For broker-dealers, search FINRA’s BrokerCheck.
If you would like to make the most of your investments, connect your brokerage account with TiiCKER to earn perks for owning shares of your favorite stocks.
TiiCKER was created for fan-first, brand-first public companies—with exclusive perks served-up weekly to shareholders. Own stock? Connect your brokerage account to view more than 130 perks waiting for you right now!
©2023 TiiCKER. All rights reserved.