Sunday, June 21, 2009
RIA versus Broker: What’s the Difference?
Although this has been a hot topic in the industry for quite a while, the general investing public does not understand the difference between a broker and an advisor. So, what’s the difference? and why should you care?
It’s actually pretty simple:
RIAs registered with the Securities and Exchange Commission are governed by the fiduciary standard that requires advisors to act in their clients’ best interests. This fiduciary standard of care is the highest know to law and, given a choice, most plan sponsors would prefer to have an advisor who is a “co-fiduciary”. Wouldn’t you prefer to work with someone who is required by law to put your interest first?
On the other hand, broker-dealers registered with the Financial Industry Regulatory Authority (FINRA) are held to the suitability standard that requires them to make recommendations that fit a client’s risk tolerance, objectives and financial status. In other words, brokers are trained and monitored to make sure that they are providing suitable investments, but normally stop short of accepting co-fiduciary status.
At the end of the day, it will depend on the individual broker or advisor, of course…there are great people on both sides of industry. But you might want to think about what happens when the chips are down and you want someone to share, in writing, the fiduciary responsibility