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 financial advisor who does not work for a big firm such as Wells Fargo or Morgan Stanley. That covers a set of territory, but ultimately all such planners and advisors who manage assets ( other than annuities or life insurance ) fall into one of two categories : They can either be registered investment advisors ( RIAs ) or registered representatives that work for an freelancer 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.

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Kinds of Investment Advisors

independent Broker-Dealers

Registered representatives who work for major wirehouses are frequently 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 survival of products and services for their clientele than wirehouse brokers .

autonomous broker-dealers are equipped to offer a broad range of investment offerings that can go far beyond mainstream vehicles such as reciprocal funds and annuities. Many of them provide alternative investments such as hedge funds, tax credits, non-qualified plans, and IPOs, sometimes marketed in advanced 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 freedom to do things their own manner .

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The RIA Side

Regulated directly by the Securities and Exchange Commission ( SEC ), RIAs are considered to be acting in a fiduciary capacity, and so held to a higher standard of conduct than registered representatives. This fiduciary standard mandates that an RIA must constantly unconditionally put the customer ’ randomness best interests ahead of their own, careless 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 business dealings. Some RIAs charge clients a percentage of their assets under management while others charge either an hourly or a flat fee to dispense advice. Advisors who choose this model for their practices must obtain a series 65 license .

special 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 identical ethically and put their clients ’ best interests ahead of their own. Being an RIA besides doesn ’ deoxythymidine monophosphate guarantee a certain floor of competence, as the Series 65 examination deals chiefly with federal securities laws and regulations .

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

The Bottom Line

RIAs and independent brokers both have considerable freedom in how they operate their businesses. RIAs are bound by a fiduciary oath, while independent brokers may have access to specific products or services that are hard to find elsewhere. The correct choice for you is most likely going to depend more on the person preferably than the clientele model. When you find an adviser you feel rightfully comfortable with, the business exemplar they use will probably be of secondary importance .