Broker-Dealers vs RIAs: What’s the Difference?

Broker-Dealers vs. RIAs : An overview

You ‘re an investor who wants to avoid the wirehouses. You are in the market for an independent fiscal planner or fiscal adviser who does not work for a large tauten such as Wells Fargo or Morgan Stanley. That covers a batch of territory, but ultimately all such planners and advisors who manage assets ( other than annuities or life indemnity ) decrease into one of two categories : They can either be registered investment advisors ( RIAs ) or registered representatives that work for an independent broker-dealer. Aside from falling under different regulative horizon, there are several different ways these professionals can provide and charge for their services .

Key Takeaways

  • Investors seeking an independent financial professional to help with advice and investments can choose between independent broker-dealers and registered investment advisors (RIAs).
  • Independent broker-dealers function as full-service brokerage firms but remain free from the constraints and demands of a large Wall Street company.
  • RIAs are independent fiduciaries who may associate with several broker-dealers, selling a range of products and services.


Kinds of Investment Advisors

independent Broker-Dealers

Registered representatives who work for major wirehouses are often told what products to sell, what stocks to recommend, and how they can conduct their business. Reps who work for Independent broker-dealers do not have these restrictions, and they normally have a much wider choice of products and services for their clientele than wirehouse brokers .

freelancer broker-dealers are equipped to offer a full moon compass of investment offerings that can go far beyond mainstream vehicles such as common funds and annuities. Many of them provide alternate investments such as hedge funds, tax credits, non-qualified plans, and IPOs, sometimes marketed in twist investment or retirement programs that are tailored to specific groups or professions such as doctors or dentists. Planners who work as reps for this type of company will charge a commission to purchase an investment, but they may have some leeway in how much they charge for a given type of transaction .

The biggest advantage of an independent broker-dealer is that there is no unnecessary bureaucracy ; agents have the exemption to do things their own direction .

The RIA Side

Regulated directly by the Securities and Exchange Commission ( SEC ), RIAs are considered to be acting in a fiduciary capacity, and indeed held to a higher standard of behavior than record representatives. This fiduciary standard mandates that an RIA must constantly unconditionally put the customer ’ second best interests ahead of their own, regardless of all other circumstances .

RIAs are besides required to disclose any possible conflicts of interest to their clients and act in an ethical manner in all of their clientele dealings. Some RIAs charge clients a share of their assets under management while others charge either an hourly or a compressed fee to dispense advice. Advisors who choose this model for their practices must obtain a series 65 license .

particular Considerations

When it comes to choosing a planner, it may seem like an RIA would be the obvious choice. But the fact is that many planners who work on commissions besides act very ethically and put their clients ’ best interests ahead of their own. Being an RIA besides doesn ’ triiodothyronine guarantee a certain floor of competence, as the Series 65 examination deals chiefly with federal securities laws and regulations .

And to further complicate the topic, many autonomous brokers besides carry the Series 65 license so they can offer turnkey managed money programs that provide active agent professional management. Some RIAs are alike affiliated with a broker-dealer so they can offer products such as variable annuities, which do not lend themselves to a arrant RIA platform.

The Bottom Line

RIAs and freelancer brokers both have considerable exemption in how they operate their businesses. RIAs are bound by a fiduciary oath, while freelancer brokers may have entree to particular products or services that are difficult to find elsewhere. The right choice for you is most likely going to depend more on the person preferably than the business model. When you find an adviser you feel truly comfortable with, the business model they use will likely be of secondary importance .

Leave a Comment

Your email address will not be published.