Investment Advisor or Stockbroker?
July 29, 2019 | Freya Allen Shoffner, Esquire | Main Office

Investment Advisor or Stockbroker?

Investment advisor or stockbroker? The titles are sometimes used interchangeably but they shouldn't be. There are critical differences between the two which are very important to keep in mind.



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Investment advisors legally and ethically are loyal first to their clients. Their clients' interests are of highest importance. Investment advisors are paid a percentage based on the value of the account. The pay structure aligns the interests of the client and the advisor, eliminating any conflicts of interest.

A stockbroker's primary obligation is not to their client, in other words they are not fiduciaries. Their primary loyalty is to themselves. Their pay is commission based. This different pay structure combined with not being a fiduciary results in the potential for conflicts of interest between broker and client. Usually when working with a retail investment firm you are working with a broker.

Last month the SEC did pass a ruling, Regulation Best Interest, that requires brokers to only recommend financial products to clients that are in the client's best interest. The broker must also make clear any potential conflicts of interest and financial incentives the broker may have. Stockbrokers' pay will still be commission based.

It is important to understand how the person managing your money is paid. Are they an investment advisor or a stockbroker? Make sure your interests come first.

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