When choosing a financial planner or firm, it’s important to find a person or team that aligns with your own goals, approach, and long-term needs. In addition to investigating how your potential planner approaches asset and wealth management, it’s key to understand exactly what type of planner they are – and to know which type works best for you.
RIA vs Broker
Two main types of financial planner come in the form of registered investment advisors (RIAs) and broker/dealers (large banks, stockbrokers, securities brokers, etc.). While there are also specialized financial advisors that deal with retirement plans or other asset classes specifically, RIAs and brokers are the two main choices when it comes to maximizing your investments and planning for the future.
The main difference between RIAs and brokers is that RIAs are fiduciary advisors while brokers are not. Both resources are bound by legal and ethical standards but because RIAs are also deemed as fiduciaries, they are seen as managing money on your behalf and must act in your best interest. Brokers, on the other hand may take their commission from your asset purchase but they may also be compensated for offering specific assets to their clients. The RIAs represent the clients while the Broker/Dealers represent their firms.
Service offerings and costs of service
In addition to their role as fiduciary in your life, RIAs are more likely to offer a full suite of financial planning services – everything from risk management to stock portfolio to estate planning. Brokers, on the other hand, are traditionally asset specific and will help to sell you stocks, securities, and other assets but are much less likely to offer long-term support and planning against your vision. While both compensated with a percentage of your assets, broker dealers may present conflicts in additional compensations for purchases you make. This compensation structure also reinforces the RIA focus on building your overall portfolio in the best way for your needs.
Lastly, because RIAs and brokers offer different services and play a different role in your money management, they belong to different oversight organizations and are governed by different rules. RIAs are governed by the SEC while brokers are governed by FINRA.
Both RIAs and brokers play a role in financial management but it’s important to not mistake one for the other or expect them to play the same role. When building your comprehensive financial plan, you’ll want to find an RIA who can cover a wide variety of needs and help you see the entire picture.