An RIA Versus A Stock Broker

In today’s video we learn the difference between a Registered Investment Advisor (RIA) and a Stock Broker.

Note that very few professionals calling themselves “Financial Advisors” are also Registered Investment Advisors (RIA). Knowing the difference is critical. In fact, many stock brokers now call themselves financial advisors to avoid the stigma associated with stock brokers.

An RIA has been through a rigorous qualification process and is required by law to act as a fiduciary to the client. This means that the RIA must always act in the best interest of the client both presently and in the future.

A stock broker represents the brokerage firm for whom he or she is employed. In recommending an investment for you to purchase, the broker must only meet a standard of “suitability” at the time the investment is made. There is no on-going responsibility as that which is required of the fiduciary, the RIA.

Further, there is a difference in the way they are compensated. A broker gets paid a commission when a transaction, buy or sell, is made. Therefore, there exists a conflict of interest in the event that it is best for you to make no transaction at all, because there is no financial incentive for the broker to make this recommendation.

An RIA working as a fee-only investment advisor is not compensated via a commission based on a buy or sell transaction and therefore has no personal financial incentive to recommend a transaction when none is warranted.

When choosing an investment advisor give strong consideration to financial advisors who are registered investment advisors (RIA) and are required to act as your fiduciary.

About the Author

Todd E. Frank, CPA/PFS, MBA is the President and CEO of Frank Financial Advisors, a Registered Investment Advisory Firm (RIA) serving clients nationwide from our headquarters in Carlsbad, San Diego, California. As an RIA, Frank Financial Advisors is able to offer truly independent, fee-only financial advisory services.