This document discusses the key differences between brokers and advisors. Brokers are held to a "suitability standard" where they must provide options that suit a client's needs but may not be the least expensive or best match. Advisors are fiduciaries held to the "fiduciary standard" where they are required to put their client's interests ahead of their own. Brokers are typically commission-based while advisors' compensation is usually fee-based such as a percentage of assets under management. The document provides an example of how costs for mutual funds purchased through a broker can add up to 2-4% annually without an investor's awareness.

1. THE DIFFERENCE
BETWEEN BROKERS
AND ADVISORS
By Anthony Pellegrino and Goldstone Financial Group
O R I G I N A L A R T I C L E : K I P L I N G E R . C O M

2. BROKERS VS. ADVISORS01
WHAT AMERICANS FAIL
TO REALIZE
You’d think with all the money
involved, investors would be clearer
on the roles and responsibilities of
their financial professionals. Instead,
they too often hand over their life
savings to the person who promises
the best returns.

3. A broker, in most cases,
sells products and makes
trades happen. He is
held to a “suitability
standard,” which means
he must provide options
that suit the client’s
needs, but those choices
might not be the least
expensive or the best
match for the client’s
goals.
An adviser, or, more
specifically, a Registered
Investment Adviser, is held to
the “fiduciary standard.” He
offers impartial guidance
and puts his client’s best
interests ahead of his own.
His compensation is usually
fee-based; he might get
paid per hour or service, but
most likely he’ll get a
percentage of your portfolio
— say 0.25% per quarter, or
1% annually.
BROKERS VS ADVISORS02
BROKERS ADVISORS

4. COMMISSION-BASED
BROKERS
There are pluses and minuses to
both arrangements. A broker, for
example, can often provide
valuable insights and advice
about the market.
PAID ON PERFORMANCE
ADVISORS
If you want a financial
professional who’s truly looking
out for you long-term, remember:
A fee-based adviser is actually
paid on performance. He makes
more money when you make more
money.
BROKERS VS ADVISORS03

5. TAKE THIS EXAMPLE...
If you’re in the retail world of investing — if you’re just a
common investor who is working with one of the big
brokerage houses out there — you’re likely paying some
costs that you aren’t even aware of.
Let’s say you’re a do-it-yourselfer and you decide to
invest in a bunch of mutual funds. Your “expense ratio”
could be made up of several fees: an administration fee
that could range from 0.2% to 0.4% annually, an asset
management fee that could be anywhere from 0.5% to
1%, a 12b-1 annual marketing or distribution fee, etc.
Put them together, and add in trading costs that could
be another 1%, and you easily could be paying 2% to 4%
and not even know it.
BROKERS VS ADVISORS04

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Article by Anthony Pellegrino
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