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Difference Between a Broker and an Advisor

Broker vs Advisor

The difference between a broker and an advisor is that a broker is a commercial agent who works as a sales man, whereas advisors do not sell products.
A broker is involved with the sale of annuity products and insurance policies etc., and they do not get paid for their advice, whereas advisors work for clients and get paid for the advice they give to the customers. Brokers are only salesmen, and get paid when their product is sold, whereas advisors provide continuous services to maintain the business of their clients.

Most brokers are held to a suitability standard, which is in contrast to an advisor who follows fiduciary standards. Another major difference between a broker and an advisor is that advisors would advise clients with the lowest expense ratio and no commission, whereas a broker must know what is in the best interest of his client who is the lender, and recommend a more expensive fund.

A broker can charge fees for his services as long as the advice is related to the brokerage services, unrestricted and with no hidden brokerage accounts. Unfortunately, there are many brokers who are misusing and abusing this protection by the Investment Advisors Act of 1940, and misleading people with false advertisements and usage of words such as financial advisors etc. Investment advice is not a key service if they offer it to their clients because their only role is to buy and sell loan products.

Advisors, unlike brokers, receive payments for providing advisory services and securities. Brokers who are offering accounts based on some fee are held to the same standards as financial advisors.
Advisors are registered with the SEC and regulated under the Investment Advisors Act of 1940, whereas brokers are subject to a different regulatory regime called the Securities Exchange Act of 1934, and also follow private-sector regulatory organizations. Advisors must put the interest of their clients ahead of his own, whereas brokers are not held to the same standard because, technically, he represents a brokerage firm and keeps the interest of his firm ahead of the interest of the borrower.

Summary:
Brokers are representatives of brokerage firms who work on commissions, and buy or sell investment products.
Financial advisors give advice to their clients and get paid for it.
Brokers are not authorized to give advice to their clients.
Advisors keep the interest of their clients ahead of their own interest.
Brokers do not follow fiduciary standards, and unlike advisors, they follow suitability standards.


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1 Comment

  1. I do not believe this article is accurate. The term Financial advisor is a generic term for anyone that is licensed to work in the finanical services industry. the term “Financial Advisor” often refers to Life insurance and annuity agents/brokers(life licensed), stockbrokers(series 7/66 or 7/63), mutual fund brokers(series 6/63), Investment Advisors(series 65).

    Many financial professionals today hold multiple licenses and designations. A financial advisor may hold one or any combination of these licenses. The term “financial advisor” to the financial industry is like using the term “doctor” to the health industry. While doctors can have specialties like oncology or pediatrics, a “financial advisor” can have specialties like “Safe money” plans using life insurance and annuity products(insurance licensed) or a securites broker(series 7 or 63) working with securities such as stocks, mutual funds,etc.

    the key would be to ask your advisor what licenses they carry and where there specialties lie
    another thing is to look at professional designations they carry. More widely known designations like “CFP” or “Certified Financial Planner” and “ChFC” or CHartered Financial Consultant” are deisgnations given to advisors that have completed coursework in General Planning. “ChFC” requires more in-depth coursework than the “CFP”. Due to the additional course work it is in my opuion that the “ChFC” holds more weight than a “CFP”. “CLU” or “Chartered Life Underwriter” for professionals that finished coursework in life insurance and annuity planning. Keep in mind that designations dont mean that the advisor is any better than the advisor without them.

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