Differences Between Financial Advisors

What is the difference between a Registered Investment Adviser (RIA), a stockbroker, a financial consultant, a financial adviser, and a financial planner?

A Registered Investment Adviser, or “RIA”, is registered either with the Securities Exchange Commission (SEC) or the states in which it conducts business. The representatives of a RIA have fulfilled educational requirements, undergone a background check, registered with the SEC or states, and have agreed to put client interests ahead of their own.

Stockbrokers fulfill some of the same functions as an RIA with one major difference. Unlike RIA’s, stockbrokers are not “fiduciaries,” which is a fancy way of saying they are not required by law to put their clients’ interests ahead of their own. While RIA’s such as Jacobs Equity are required by law to look out for their clients’ best interests, stockbrokers are not. Stockbrokers are allowed to sell any product or investment to their clients even if their advice is colored by the expectation of commissions, third-party referral fees, or other conflicts of interest. Stockbrokers are allowed to recommend a product or investment without taking into account whether it’s suitable for their client.

The other terms mentioned above such as financial consultant, financial adviser, and financial planner have no special meaning under the law. There is no educational requirement, fiduciary requirement, background check, or other special requirements placed on people using these terms.

By law stockbrokers and financial planners are not allowed to describe themselves as a “Registered Investment Adviser.” Thus it should be easy to tell whether your adviser is a “Registered Investment Adviser” or RIA.

For more information see the Securities and Exchange Commission page Investment Advisers: What You Need to Know Before Choosing One.

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