Invest Financial Planning

Broker vs. Advisor: What’s The Difference? 

Howard Gensler  |  July 5, 2023

Are you considering working with a broker or an advisor and you’re not sure how to choose? Here’s a breakdown of what the designations mean. 

Broker vs. Advisor: How do you know which one to work with? The terms are often used interchangeably, and many people who call themselves advisors are really brokers. Most brokers prefer to be called advisors these days, but there are important differences. Here’s a look at everything you need to know when considering working with a broker vs. an advisor.

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What it comes down to is this: Brokers and investment advisors have different qualifications, and while brokers are regulated by FINRA (the Financial Industry Regulatory Authority), advisors (both the individual advisors and the firms they work for are sometimes called RIAs or Registered Investment Advisors) are regulated by the Securities and Exchange Commission (SEC). While some brokers just take buy/sell orders and others will weigh in on strategy if asked, financial advisors tend to have a broader range of knowledge across the financial spectrum.

The biggest difference is that while advisors must always act in their client’s best interest, brokers, on the other hand, are paid commissions when they buy and sell assets, which means they may not always act according to what’s best for their client. To make sure you’re always getting unbiased advice, you’ll need to ask your professional if they are bound by a fiduciary duty to their clients, and check out their credentials — more on how to do that below. 

Working With A Broker vs. an Advisor 

Back in pre-Internet times, most people had to call their brokers on the phone when they wanted to make a transaction. (And it wasn’t always easy to get through when the markets were busy!) Now, thanks to online brokerages, robo-advisors and automatic deposits into 401(k)s, many people may never personally speak to their broker or advisor at all. Or, depending on their needs, they may not ever have a relationship with a broker or advisor — instead, they might pick their own investments and DIY the whole shebang. Or they may work with a Certified Financial Planner (CFP) — a designation that indicates years of experience, passage of a rigorous exam and adherence to the fiduciary standard.

These days, the options for the type of financial professional you can work with are endless. Here’s a deeper dive into what various financial advisors do and what their titles mean. 

But what’s an example of how brokers and advisors function? Abrams offered an example of a situation in which you’re eyeing two investments that may seem equal: A broker may be getting compensated if they sell you one of the investments, and they can take their own compensation into account when recommending the investment to you — but the advisor can’t, because they’re bound by fiduciary duty. 

Deborah Klatz Rounick, a financial advisor at Ameriprise, describes it this way: “Brokers are available for clients who want guidance only on their assets within a brokerage account, rather than a deeper discussion of the full scope of their financial situation,” she says. “Registered investment advisors, on the other hand, have fiduciary duties to their clients. When you think of advisors, you should be thinking about advice specific to helping clients reach their short- and long-term financial goals.”

Klatz Rounick says that when working with an advisor, a client should expect ongoing investment advice, and expect to pay a fee based on assets. This aligns the advisor’s goals with your own: when your assets increase, they make more money, so they have a vested interest in you earning as much as you can. 

If you’re working with a broker, you’re always free to ask them for advice, and some veteran brokers are extremely knowledgeable about the markets. “Whether you’re working with an advisor or a broker you should ask any questions you have. We have knowledge that can help you feel more confident about your financial situation,” she says.

Checking A Professional’s Qualifications + Credentials 

When choosing someone to work with, Klatz Rounick recommends looking at their professional designations, and keeping an eye out for any niche specialities they may have that matches your profile or situation.

“I, for example, have my Chartered Retirement Planning Counselor (CRPC) and Accredited Portfolio Management Advisor (APMA) designations, which mean I have deep expertise in helping clients of all asset levels figure out how to allocate their investments in the most suitable way to reach their goals, including retirement,” she says.  

Other credentials you may want to look for are the CFP or Certified Private Wealth advisor (CPWA) designations. You can search for these professionals via free databases from the Certified Financial Planner Board of Standards or the Financial Planning Association. You can do a background check on a broker via FINRA’s BrokerCheck, and you can vet an advisor via the SEC’s AdvisorInfo site. (The AdvisorInfo site looks at the SEC’s Form ADV Part II, which is a form that advisors must fill out every year. It details their investment style and can tell you if they have ever filed for bankruptcy, which could be a potential red flag.) 

Can Having An Advisor Improve My Access to Different Types of Investments?

Yes, but it depends on the advisor’s firm and what that organization has available to its advisors. At Ameriprise, for example, Klatz Rounick says she offers clients access to private equity and hedge fund strategies, non-traded real estate investment trusts, securities-based lending, trust services, structured products, insurance vehicles, municipal bond managers, and more. This is typical of the offerings you’d find at all of the big financial players. “I have immense resources and experts at my disposal that you can’t replicate on your own,” Klatz Rounick says. But she also cautions investors: “Not everyone needs complex vehicles to achieve their goals. As your finances evolve, your needs may change, so working with someone that has the ability and knowledge to present them when the time comes can make a big difference.”

What if My Advisor Messes Up?

There’s obviously a big difference between an advisor who gives deliberately sketchy advice in the hopes of profiting vs. one with the best intentions whose advice just doesn’t work out. Unfortunately, even the top advisors don’t have crystal balls. They take the best information available to them at the time, and then make decisions accordingly. (For example, if your advisor recommends diversifying with a travel and leisure stock, and then a few months later a pandemic forces everyone to stay home, that’s the way the portfolio crumbles.) 

But if you have legitimate complaints about your advisor, Klatz Rounick says “all client complaints are thoroughly investigated. These are not taken lightly and are a big deal.” And although we hope you never have to do it, you can always file a complaint at the same sites you visit to vet your financial professional. 


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