Brokers vs. RIAs: What’s the Difference?

June 23, 2016 | By Traust Sollus Wealth Management

Most investors like to have guidance when making their decisions. As a result, it’s common to look for help when trying to put together an investing plan, or determining which investments work best in a portfolio. This usually means turning to some sort of investment advisor.

Essentially, two types of professionals offer investment advice: brokers and independent, registered investment advisors (RIAs). Let’s explore each so you can decide which is right for you.

A broker, also known as a registered rep, financial advisor or account executive, works at a broker-dealer, typically a national or regional brokerage firm that facilitates investment transactions. Oftentimes, these firms are subsidiaries of commercial banks, investment banks or investment companies.

Brokers help clients decide which investments to purchase and which to sell. Some brokers receive compensation through commissions while others are fee-based. Commissions are based on investment transactions made on a client’s behalf. Some brokers offer financial-planning services. However, other brokers’ investment recommendations may lack the perspective of an individual’s full personal financial situation and his or her goals and objectives. This may not mean the best investment for the client; rather only recommendations that meet the client’s tolerance for risk.

Most brokerage activity is regulated under the Securities Exchange Act of 1934. This Act requires that a broker’s investment recommendations be “suitable” for the needs of the client. Conflicts of interest and self-dealing are not prohibited. Though there are brokers who operate with their clients’ best interests in mind and a full view of their financial picture, a broker is not legally required to put his or her own interests above the client’s when recommending investments. As a result, a broker can recommend investments that result in a larger commission, even if there is another investment that might be better for a client’s situation — there is no law that prohibits a broker from doing so.

RIAs in contrast, tend to work at smaller, independent investment advisory firms, earning their income from advisory fees. They are registered with and regulated by either the Securities and Exchange Commission (the “SEC”) or their appropriate state securities regulator(s), depending on the size of the assets under management. Unlike brokers, who must only meet a suitability standard when working with you, RIAs are required by law to act in a fiduciary capacity. This means that RIAs are legally required to put clients’ interests ahead of their own with the advice they give and the investments they recommend for meeting clients’ goals and objectives.

Conflicts of interest must be disclosed, and self-dealing is generally prohibited. When receiving advice from an RIA, clients can be reasonably sure that those recommendations are what the advisor considers truly best for the client’s specific situation.

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The article presented is from Worth magazine. Worth magazine is a financial publisher that maintains a directory of leading wealth advisors – the Worth® Leading Wealth AdvisorsTM directory. This directory is designed to assist individuals in finding a qualified financial expert. Advisers, like Traust Sollus Wealth Management, LLC (“Traust Sollus”), that are listed in Worth magazine’s directory must actively seek to be included in the directory. In order to seek inclusion on the directory, advisers must submit information to Worth and Paladin Advisor Research ( that details their credentials, ethics, business practices and services. Traust Sollus is unaware of how many advisers have sought to be included in the Worth® Leading Wealth AdvisorsTM directory and what percentage of those advisers, if any, failed to qualify to be included in the directory. Once admitted, Worth® Leading Wealth AdvisorsTM pay a fee to be included in the directory. Traust Sollus paid an annual fee of approximately $19,000 to be included in the Worth® Leading Wealth AdvisorsTM program. Being listed on the directory allows firms to submit articles to be included in Worth magazine. The listing of any firm in the Worth® Leading Wealth AdvisorsTM directory does not constitute a recommendation or endorsement by Worth magazine of any such firm or adviser and is not based upon Worth magazine’s prior dealings with any firm or adviser aside from meeting certain predetermined criteria established by Worth magazine.