Apply Now The Differences Between a Broker or Dealer and a Registered Investment Advisor Get 0 Now

Survey results indicate 76% of Americans don't have in mind the difference from a broker/dealer along with a Registered Investment Advisor. People in the financial business currently have the freedom to call themselves what they've to like: "financial advisor," "financial planner," or "financial consultant" are all popular. Unfortunately, none of the terms express exactly exactly what the individual is paid to do.

A "broker/dealer representative" is really a salesman of stocks, bonds and mutual funds. Many times they're also involved with all the sale of insurance and annuity products (all for commissions). "Insurance agents" represent the interests of a single or even more insurance firms and just get paid after they sell a policy.

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Neither the broker/dealer representative nor the insurance salesman gets paid to supply advice-hence, they are not truly "advisors." These individuals only get paid whenever they sell a product-- they're salesmen. As you could expect, salesmen only plainly when they have a product to sell. Salesmen usually do not produce a living servicing the products they have already sold.

The Differences Between a Broker or Dealer and a Registered Investment Advisor

Fee-only Registered Investment Advisors do not sell products. They work for his or her clients and are just compensated by their potential customers as a swap for professional advice. Thus, a fee-only planner's compensation encourages objective advice and behavior that is certainly always in the client's best interest. These people are true "financial advisors." Fee-only Registered Investment Advisors do not collect commissions, so they should continually ensure their potential customers satisfaction in order to generate a profit. These advisors must constantly provide superior plan to maintain their client's business.

Most broker/dealer and insurance representatives are held to your "suitability standard," meaning they need to do what exactly is suitable for his or her clients. By contrast, fee-only Registered Investment Advisors are held to your "fiduciary standard," meaning they need to do what exactly is in the client's best interest. To illustrate the difference, suppose the S&P 500 index can be a suitable investment for a client, but there are two funds the advisor can select from. One fund comes with an expense ratio of .75% and pays a .6% commission towards the salesperson. The other fund has a .15% expense ratio, and pays no commission for the advisor. Both funds are "suitable" for the client, so a broker/dealer is able to recommend the greater expensive fund. However, a fiduciary is obligated to recommend the fund using the lower expense ratio that does not pay a commission. Big difference!



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