Investment Advice: Is Your Adviser Working in Your Best Interests?

Key Takeaways:

  • Investment advisers and brokers have traditionally performed separate functions. Though brokers may call themselves advisors, investors should know the difference.
  • The current regulatory environment has blurred the lines between investment advisers and brokers, making it difficult for investors to distinguish between the two.
  • No matter the professional, you still need to do your due diligence and homework when selecting a financial professional to manage investments for you.

As your working life draws to a close, you may start to consider all the hard work and effort it took to put away and invest enough for retirement. The last thing you want to happen is to run out of money in retirement. Yet, it is one of the biggest risks and fears investors face.

Getting investment advice and choosing the right financial adviser can be crucial to helping you reach your long-term investing goals, but it can be complicated. The financial landscape is littered with different types of financial professionals with different titles. When searching for an adviser, do your research on the industry and understand what kind of service is best for you.

In this article, we discuss some of the differences between investment advisers and brokers, and what to expect from each in our view.

Investment Adviser vs. Broker: Which Is Best for You?

Investment advisers and brokers co-exist in the financial industry, and one or the other may suit your investing needs better. Before you decide where to turn for investing advice, make sure you understand the difference, and what that could mean for your investments and retirement.

Some people understand brokers primarily buy and sell securities, but some may do more than just transact for you when you are investing. A broker-dealer is an individual or company in the business of buying and selling securities—stocks, bonds, mutual funds, exchange-traded funds and other investment products—on behalf of its clients (as broker), for its own account (as dealer) or both. Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA)—a self-regulatory organization. Brokers often earn commissions on client trades and from selling certain investment products. This commission based structure may be useful if you plan on executing your own investment strategy and using your broker to effect those transactions. Just be aware of a broker’s potential incentive to sell you certain investments that earn them higher commissions.

On the other hand, investment advisers provide ongoing financial advice and may directly invest for their clients. They are registered with Securities and Exchange Commission (SEC) or a state securities regulator. Investment advisers often charge an ongoing fee based on the assets they manage for you. If an investment adviser employs a separate broker to hold (custody) your assets, the adviser may be a fee-only adviser. Fee-only advisers generally do not earn trade commissions and only earn their ongoing fee based on the amount of assets they manage and invest for you.

Blurring the Line

However, the distinction between investment advisers and brokers has become complex. Many investment professionals straddle both categories—they act as a broker sometimes and as an investment adviser at other times. You may see brokers identify themselves as financial advisors or investment advisors. (Note “advisors” spelled with an “o” instead of an “e.”) It is important to know the difference between advisor and adviser. Some brokers have started registering as both brokers and investment advisers. Other financial professionals may call themselves wealth managers or financial planners.

With these dually-registered advisers, it can be tough to know exactly what fees clients are paying and what services the professionals are providing to their clients. Since investment advisers generally charge advisory fees and brokers generally earn commissions, dually-registered professionals may use a “fee-based” model that allows them to potentially charge an advisory fee as well as earn commissions for trades in client portfolios. Fees are just another reason it is important to understand the difference between the adviser title and other titles such as financial advisors, investment advisors, financial planners and wealth managers. Knowing a financial professional’s fee structure can help you understand their firm structure and how they make money on client portfolios.

How Can You Be Sure You’re Getting the Best Advice?

Make sure the financial firm offers the right service for you. If you are looking for ongoing investment advice rather than simple transactional help, you may be best served choosing an investment adviser to manage your investment portfolio.

Trying to figure out financial professional titles and services can be complex. But knowing the differences between the types of financial professionals can be crucial since clients are putting their faith in someone to help them invest their portfolios. To find out if a person is a broker, investment adviser or both, it is a good idea to ask the following clarifying questions:

  • Are you a registered investment adviser or a broker?
  • Are you and your firm registered with the SEC, the state administrator or the Financial Industry Regulating Authority (FINRA)?
  • Aside from what I pay you directly, what other compensation do you receive?
  • Will you receive commission from transactions made in my account?

How Fisher Investments Can Help

Fisher Investments is an investment adviser and has been since our founding. Our personalized investing services, transparent fee structure and portfolio management differentiate us from the traditional broker model. If you are interested in finding out more about our firm or learning more about the financial industry, call and speak with one of our qualified professionals or download one of our educational guides.

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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations.