Securities Lawyers Blog
Most people do not realize that there is a big distinction between brokers and investment advisors. Many people think, they both recommend securities. While that is true, that is pretty much where the similarities end.
A broker is regulated by The Financial Industry Regulatory Authority (FINRA) a self-regulatory organization (SRO) as provided for under the Securities and Exchange Act of 1934. On the other hand investment advisors are regulated by the Securities and Exchange Commission as provided under the Investment Advisors Act of 1940 (IAA).
A broker is more akin to salesman. A broker’s obligation is to make sure that his or her recommendation is suitable and appropriate for the investor given the investors objectives and other information. However, an investment advisor is more like an appraiser of securities, his or her job is not only to make recommendations that are not only suitable but to continually monitor the investors account to ensure that the investor has a viable financial plan over time. Consequently, a broker is compensated on a transactional basis while an investment advisor is paid a percentage of the assets managed by the advisor.