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DIFFERENCES BETWEEN AN INVESTMENT ADVISER AND A
BROKER
The roles of an investment adviser and that of a broker are quite different. The difference lies
between the services they provide and how they are compensated for these services. Before the
internet, brokers were in high demand because individuals had little or no direct access to the
market, and brokers had to make trades. In return, clients compensated brokers with massive
commissions. Due to the ease of entry to the internet, most brokers have expanded their aid to
include personalized investment management to account for their high commissions, seeing as
most individuals can now execute buy and sell orders without paying any commissions.
On the other hand, investment advisers provide advice that focuses more on their client’s needs,
working on a fee-based system. They also cannot earn commissions as they are paid only a flat
or hourly fee or a certain percentage of the assets they manage. Acting as fiduciaries (trustees),
they are legally obligated to always act in their client’s best interest. In doing so, they work with
clients to diversify and create a vast wealth management framework and also assist them with
planning their estates, mortgages, and taxes. More often than not, they also manage their client’s
investment portfolios and accounts. In terms of regulation, investment advisers have higher legal
standards than brokers. Investment advisers are required to perform fiduciary duties concerning
their client’s accounts. This means that according to the law, they are not allowed to defraud or
scam any of their clients to make profits, unlike brokers, who have more lenient rules regarding
their relationships with clients. Investment advisers are more accountable as fiduciaries because
they have more responsibility to a client. For example, investment advisers can make trades on a
client’s account without informing the client, while brokers require the client’s say-so before
buying or selling securities on behalf of the client.
Investment advisers also have a lot of differences regarding the training and licenses they have to
acquire before they can practice. For example, before an individual can practice as a broker, they
must pass the General Securities Representative Exam. Also known as Series 7, this exam acts as
an antecedent to other advanced exams in the securities industry. In contrast, investment advisors
must pass the Uniform Investment Adviser Law Examination (Series 65) before they are licensed
to charge clients a fee for investment advice. A significant difference between these two exams is
that individuals who wish to take the Series 7 exam have to be sponsored by a firm before
registering for the exam, while Series 65 doesn’t.
Different government agencies govern brokers and investment advisers. Investment advisers are
registered under the Securities and Exchange Commission (SEC), while the Financial Industry
Regulatory Authority (FINRA) regulates brokers. The amount of money a client is willing to pay
for a service could also differentiate investment advisers and brokers. For example, if a client
desires to buy or sell a stock or any other form of investment, then employing the services of a
broker is most likely the right choice and should come at a lesser cost. However, investment
advisers provide more services and can help with more advanced financial planning solutions.
Therefore, their services cost more. Considering these facts, financial advisers are usually less
accessible to investors who are just building wealth compared to brokers.

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DIFFERENCES BETWEEN AN INVESTMENT ADVISER AND A BROKER.docx

  • 1. DIFFERENCES BETWEEN AN INVESTMENT ADVISER AND A BROKER The roles of an investment adviser and that of a broker are quite different. The difference lies between the services they provide and how they are compensated for these services. Before the internet, brokers were in high demand because individuals had little or no direct access to the market, and brokers had to make trades. In return, clients compensated brokers with massive commissions. Due to the ease of entry to the internet, most brokers have expanded their aid to include personalized investment management to account for their high commissions, seeing as most individuals can now execute buy and sell orders without paying any commissions. On the other hand, investment advisers provide advice that focuses more on their client’s needs, working on a fee-based system. They also cannot earn commissions as they are paid only a flat or hourly fee or a certain percentage of the assets they manage. Acting as fiduciaries (trustees), they are legally obligated to always act in their client’s best interest. In doing so, they work with clients to diversify and create a vast wealth management framework and also assist them with planning their estates, mortgages, and taxes. More often than not, they also manage their client’s investment portfolios and accounts. In terms of regulation, investment advisers have higher legal standards than brokers. Investment advisers are required to perform fiduciary duties concerning their client’s accounts. This means that according to the law, they are not allowed to defraud or scam any of their clients to make profits, unlike brokers, who have more lenient rules regarding their relationships with clients. Investment advisers are more accountable as fiduciaries because they have more responsibility to a client. For example, investment advisers can make trades on a client’s account without informing the client, while brokers require the client’s say-so before buying or selling securities on behalf of the client. Investment advisers also have a lot of differences regarding the training and licenses they have to acquire before they can practice. For example, before an individual can practice as a broker, they must pass the General Securities Representative Exam. Also known as Series 7, this exam acts as an antecedent to other advanced exams in the securities industry. In contrast, investment advisors must pass the Uniform Investment Adviser Law Examination (Series 65) before they are licensed to charge clients a fee for investment advice. A significant difference between these two exams is that individuals who wish to take the Series 7 exam have to be sponsored by a firm before registering for the exam, while Series 65 doesn’t. Different government agencies govern brokers and investment advisers. Investment advisers are registered under the Securities and Exchange Commission (SEC), while the Financial Industry Regulatory Authority (FINRA) regulates brokers. The amount of money a client is willing to pay for a service could also differentiate investment advisers and brokers. For example, if a client desires to buy or sell a stock or any other form of investment, then employing the services of a
  • 2. broker is most likely the right choice and should come at a lesser cost. However, investment advisers provide more services and can help with more advanced financial planning solutions. Therefore, their services cost more. Considering these facts, financial advisers are usually less accessible to investors who are just building wealth compared to brokers.