What is the Difference Between a Broker-­Dealer and a Registered Investment Advisor?

There are plenty of people and institutions that will try to give you investing advice, but how do you know they have your best interest in mind? Furthermore, how do you know you’re making the best decision for your investments? Even if you find an advisor that provides strong returns, you could lose out with overpriced fees and hefty commissions. Know who you’re dealing with before you invest, and learn the differences between and Broker­ Dealer and a Registered Investment Advisor. Please visit RIAStandsForYou.com for more helpful information.

Registered Investment Advisors are Bound by Fiduciary Standards

Many clients want to make sure that the advisor they choose has their best interests in mind. Working with a RIA is the best way to ensure that they do. RIAs are legally bound to put the customer’s needs ahead of their own or their company. RIAs are required to disclose any conflicts of interest particularly if the company is expected to benefit significantly from an investment opportunity. Conversely, broker/dealers are not bound by the strict laws or fiduciary duties of a RIA. While the SEC does require broker/dealers to make suitable suggestions and to disclose potential conflicts of interest, they are still able to – and frequently do ­ suggest the types of investments that pay larger commissions, reduce liquidity or interject greater portfolio risk.

Broker­Dealers are Commission­Based, While RIAs Utilize Fee For Service

Most broker/dealers operate on commission-­based business models. This enables them to charge by the transaction and receive immediate gratification for moving or changing an investment. In some cases, this results in unnecessary or excessive trading activity or “account churning” to increase the amount of commissions they receive. RIAs charge a fee for their services based upon the value of the assets being managed. This method, we believe, aligns the objectives of the client and the RIA putting them on the same side of the table. At Alterity Financial Group, we sell no proprietary products as do many broker/dealers. You can be assured that a recommendation from us will always have your best interests as our priority.

Choosing Your Best Option

Not all broker­-dealers act with their client’s best interests in mind or follow their legal obligations as closely as they should. When it’s time to choose and individual or company to manage your investments, remember that it is important that you trust their motives and that you believe you will receive the care, respect and transparency you deserve.