Investment Advisor Vs. Broker

The time has come, and procrastination is no longer an option. You’ve been putting this off for days, weeks, months or even years. It’s finally time to start your retirement planning. But there is just one problem; chances are that you haven’t retired before, and this means that this just may very well be your first time at this rodeo. Well when diving into the deep end of the pool for the first time it’s nice to know that there is an experienced lifeguard watching out for you. In other words it’s nice to know there’s someone experienced at your right hand side helping you through this sometimes intimidating and complicated process. But now the question stands, who do you want to be your lifeguard? When it comes to making the decision of who you want assisting you in this matter the choices can be categorized between two selections, Investment advisors or brokers. Let’s learn a little bit more about both of these entities before we make judgments about either.

An “investment advisor”, according to the Investment Advisors Act of 1940, is “a person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications.” This act also requires investment advisors to follow something known as the fiduciary standard Requiring Them to act in the Best Interests of the client and specifically stating that they must put the clients’ interests above their own and divulge any possible conflicts. In other words all investment advisors are held to a higher ethical and honest standard far more stringent than the “suitability standard”. Investment advisors are there to help you and put you first from start to finish.

A broker on the other hand is very different in very subtle yet key ways. A broker is defined by the Securities Exchange Act of 1934 as “any person engaged in the business of effecting transactions in securities for the account of others.” In other words they receive their money from commissions based on which investments they advise you to choose unlike the payment methods that investment advisors use. Brokers, similar to Investment Advisors, follow a code of conduct however this is where the differences become more subtle. Brokers are held to a different standard set up by their own governing body, Financial Industry Regulatory Authority (F.I.N.R.A.). Brokers are held to something called the suitability rule, stating that a Broker needs to believe that recommendations given are consistent with the interests of the clients’ financial needs and circumstances at the time. The difference between this standard and that which Financial Advisors are held under is that the Suitability rule DOES NOT set standards around conflicts of interest or a necessity to place the clients’ needs above one’s own.​​

When it comes down to it, experience and intention are key attributes of the person you want handling your money and future. In the end it is all YOUR choice, and weather it be with a broker or an investment advisor, the most important thing is that you feel safe and secure in your decision with your finances, assets, and future.