The Difference Between a Financial Advisor and a Registered Investment Advisor

Posted by super on February 17, 2016 in Investments |

According to a survey performed by the Security and Exchange Commission, most individuals are not aware of the differences between a financial advisor and a registered investment advisor. There are several key differences though, and it is important for anyone placing their trust and hard earned cash in the hands of one of these advisors to be aware. If you are considering seeking the counsel of a financial planner or investment advisor, here’s an explanation of the differences between the two.

The Financial Advisor

A financial advisor buys and sells securities on behalf of his or her client. They may set up retirement plans for individuals, or 401(k)s, IRAs, or other types of and pension programs for corporations. Financial advisers may also offer stocks, bonds, mutual funds, and assist with end of life wealth distribution plans.

 

Financial advisers have detailed knowledge in accounting, finances, and an understanding of the way the market works. Other responsibilities of the financial advisor include:

  • Instructing clients on investment opportunities
  • Keeping up with the financial market
  • Assessing the risk in an investment
  • Helping clients cope with the loss of an investment

These advisors may obtain additional certifications and continue their education in order to serve their clients better and obtain more knowledge about the ever-changing financial market.

Financial advisors, wealth managers, investment analysts, and other similar titles are often paid by receiving commissions directly related to the financial products they advise clients to purchase. Financial advisors may also charge fees for portfolio management. This can be a flat fee or a percentage of the value of the client’s investments.

The Registered Investment Advisor

A registered investment advisor has many of the same job duties as a financial advisor. However, there is one key difference between the two, and this difference can mean a lot to potential clients who are seeking help with their financial investments. This difference is what is known as fiduciary.

Investment advisors are registered and governed under the Investment Advisors Act of 1940. While some financial advisors may be simply working to push financial products to earn a commission, registered investment advisors are held to a much higher standard. Being fiduciaries, and held to a fiduciary standard, a registered investment advisor (RIA) is required to place the best interests of the client ahead of their own or the interests of any brokerage firm. RIAs avoid conflicts of interest by charging a flat fee instead of earning commissions on products sold.

When choosing between a financial advisor or a registered investment advisor, the best way to do so is by asking for a fee disclosure. If your financial advisor earns commissions and bonuses from the sale of mutual funds or other financial products, they may run into conflicts which could skew the advice provided to clients.

A registered investment advisor, held to the fiduciary standard, avoids these conflicts by setting rates according to the work completed, not according to product sales.

When it comes to protecting your wealth and your financial future, the all important first step is to know who you are dealing with. Sound, impartial financial advice is key. Who are you listening to? Is your wealth manager a financial advisor or a registered investment advisor? It may be time to find out.

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