No, Your Broker Does Not Provide Advice!

It’s truly unfortunate that so many plan sponsors I talk to insist that their broker gives advice.  “Why is the broker’s name listed as the contact for all of their participants to call?”, one plan sponsor continued to ask me in spite of my continued attempts to explain the difference between a broker and a registered investment advisor, the basic concept that when you are a service provider whose compensation depends on receiving a kickback from a third party, it’s not advice, and the fact that he could have independently verified my claim by contacting FINRA (Financial Industry Regulatory Authority) or simply asking his broker.

This article further explains:

Conflicts of Interest Cost Retirement Plan Investors Billions:

•   By using affiliated mutual funds, brokers are not acting in the client’s best interest. This is the focal point of the fiduciary standard. Eliminate the conflicts of interest in terms of giving advice, and investors will immediately benefit. It doesn’t mean eliminating brokers, it just means eliminating the claim that brokers are giving advice. They are not. Advice requires a fiduciary duty. Brokers don’t (and shouldn’t) have to operate under the regimen of a fiduciary duty.  Brokers don’t give advice. They trade.

This article makes the distinction between selling securities and providing advice clear as well:


What they are: While many people use the word broker generically to describe someone who handles stock transactions, the legal definition is somewhat different—and worth knowing. A broker-dealer is a person or company that is in the business of buying and selling securities—stocks, bonds, mutual funds, and certain other investment products—on behalf of its customers (as broker), for its own account (as dealer), or both. Individuals who work for broker-dealers—the sales personnel whom most people call brokers—are technically known as registered representatives.

Who regulates them: With few exceptions, broker-dealers must register with the Securities and Exchange Commission (SEC) and be members of FINRA. Individual registered representatives must register with FINRA, pass a qualifying examination, and be licensed by your state securities regulator before they can do business with you. You can obtain background information on broker-dealers and registered representatives—including registration, licensing, and disciplinary history—by using FINRA BrokerCheck or calling us toll-free (800) 289-9999. You can also contact your state securities regulator. To find your regulator, check the government listing of your phone book or contact the North American Securities Administrators Association at or (202) 737-0900.

What they offer: Broker-dealers vary widely in the types of services they offer, falling generally into two categories—full-service and discount brokerage firms. Full-service firms typically charge more for each transaction, but they tend to have large research operations that representatives can tap into when making recommendations, can handle nearly any kind of financial transaction you want to make, and may offer investment planning or other services. Discount broker-dealer firms are usually cheaper, but you may have to research potential investments on your own—though the broker-dealer Web sites may have a lot of information you can use.

Registered representatives are primarily securities salespeople and may also go by such generic titles as financial consultant, financial adviser, or investment consultant. The products they can sell you depend on the licenses they hold. For example, a representative who has passed the Series 6 exam can sell only mutual funds, variable annuities, and similar products, while the holder of a Series 7 license can sell a broader array of securities. When a registered representative suggests that you buy or sell a particular security, he or she must have reason to believe that the recommendation is suitable for you based on a host of factors, including your income, portfolio, and overall financial situation, your tolerance for risk, and your stated investment objectives.

Investment Advisers

What they are: An investment adviser is an individual or company who is paid for providing advice about securities to their clients. Although the terms sound similar, investment advisers are not the same as financial advisers and should not be confused. The term financial adviser is a generic term that usually refers to a broker (or, to use the technical term, a registered representative).

By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Common names for investment advisers include asset managers, investment counselors, investment managers, portfolio managers, and wealth managers. Investment adviser representatives are individuals who work for and give advice on behalf of registered investment advisers.

Who regulates them: The SEC regulates investment advisers who manage $110 million or more in client assets. Advisers who manage less are regulated by the securities regulator for the state where the adviser has its principal place of business. Because they primarily engage in the buying and selling of securities, broker-dealers and registered representatives typically do not have to register as investment advisers. But some do, which is why it is so important to find out exactly which services a professional who wears multiple hats will provide for you and what they will charge for their services.

You can get background information on both SEC- and state-registered investment advisers by using FINRA BrokerCheck or calling us toll-free (800) 289-9999.You can also get background information by visiting the SEC’s Investment Adviser Public Disclosure database.

What they offer: In addition to providing individually tailored investment advice, some investment advisers manage investment portfolios. Others may offer financial planning services or, if they are properly licensed, brokerage services (such as buying or selling stock or bonds)—or some combination of all these services.

And if the information above isn’t enough, here are more articles that explain:

Broker Versus RIA

Here are some highlights:

The vast majority of people you would normally think of as a “financial advisor” are Registered Representatives of a Broker-Dealer. But there are actually three kinds of advisors.

THE FIRST is a Registered Representative of a Broker-Dealer. Known as “A Broker”. Sales and product driven advice. A Broker cannot charge you just for advice. They can only make money on the investments they sell to you.

THE SECOND is a Registered Investment Advisor (RIA). You pay an RIA only for investment advice.

THE THIRD– is the hybrid broker. Brokerage firms now have their own affiliated RIA firms. Brokers can now be both a broker and an RIA and jump back and forth between them. Since many people prefer fee based accounts, brokers can set up these arrangements. But with hybrid firms the conflicts of interest are massive and the fees are very high.

Broker? Adviser? And What’s the Difference?

Investment advisers vs. brokers: Know the difference

Fee-Only Financial Planner: What’s the Difference?