Broker-dealer and RIA: What is the difference?

Broker-dealers and RIAs: an overview

You are an investor who wants to avoid wire companies. You are looking for an independent financial planner or financial adviser in the market who does not work for a large company such as Wells Fargo Bank or Morgan Stanley. This covers many areas, but ultimately all planners and consultants who manage assets (except annuities or life insurance) fall into one of the following two categories: They can be registered investment advisors (RIA) or registered representatives working for independent institutions. Business. In addition to belonging to different regulatory scopes, these professionals can also provide services and fees in a variety of different ways.

Key points

  • Investors seeking the help of independent financial professionals to provide advice and investment can choose between independent broker-dealers and registered investment advisors (RIA).
  • Independent broker-dealers operate as full-service brokerage firms, but are not subject to the restrictions and requirements of large Wall Street companies.
  • RIA is an independent trustee and may have connections with multiple broker-dealers to sell a range of products and services.

Types of investment advisors

Independent broker

Registered representatives working for large wire companies are often told what products to sell, what stocks to recommend, and how they do business. Representatives working for independent broker-dealers do not have these restrictions, and they usually provide customers with a wider choice of products and services than cable brokers.

Independent broker-dealers have the ability to provide a full range of investment products, far beyond mainstream tools such as mutual funds and annuities. Many of them offer alternative investments, such as hedge funds, tax credits, non-qualified plans, and IPOs, sometimes marketing in complex investment or retirement plans, which are tailored to specific groups or professions (such as doctors or dentists) . Planners representing such companies will charge commissions for the purchase of investments, but they may have some leeway in how much they charge for certain types of transactions.

The biggest advantage of an independent broker-dealer is that there is no unnecessary bureaucracy; agents are free to do things their own way.

RIA aspect

RIA is directly regulated by the Securities and Exchange Commission (SEC) and is regarded as acting as a trustee, so it has a higher standard of conduct than registered representatives. This fiduciary standard requires that RIA must always unconditionally put the best interests of customers above itself, regardless of other circumstances.

RIA is also required to disclose any possible conflicts of interest to its customers and to act in an ethical manner in all its business transactions. Some RIAs charge clients a percentage of their assets under management, while other RIAs charge hourly or fixed fees to provide advice. Consultants who choose this model for their practice must obtain a Series 65 license.

special attention items

When choosing a planner, RIA seems to be the obvious choice. But the truth is that many planners who work on commissions are also very ethical and put the best interests of their clients above their own. Becoming an RIA does not guarantee a certain level of ability, because the Series 65 exam mainly involves federal securities laws and regulations.

To further complicate the problem, many independent brokers also hold Series 65 licenses, so they can provide turnkey managed funds plans that provide active professional management. Some RIAs are also affiliated with broker-dealers, so they can provide products such as variable annuities that are not suitable for pure RIA platforms.

Bottom line

Both RIA and independent brokers have considerable freedom in how to run their business. RIAs are bound by an oath of trust, and independent brokers may obtain specific products or services that are difficult to find elsewhere. The right choice for you is likely to depend more on the person than the business model. When you find a consultant who makes you truly satisfied, the business model they use may be secondary.


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