Investment Advisors
Comparing Independent Investment Advisors with Commission Brokers
When the time comes to choose someone to advise you on managing your investments, the decision can be one of the most important that you will make in your life. Not only do you need the person or company you choose to be knowledgeable, you must also be confident that they have your best interests at heart.
There are many individuals and firms who bill themselves as financial planners. There are over 11,000 independent investment advisors and approximately 5,100 commission brokers in the United States alone. All of them are regulated extensively by the government. However, the standards required of each category is different. Many investors are not aware of the differences or their legal implications. This is where you must do your homework.
Commission broker
A commission broker is either an employee of, or has a financial relationship with, a financial organization which will pay him a commission on the products he sells. He is normally limited to recommending products that are sold by the company where he works.
Every commission broker, who does business with the public, is required to become a member of FINRA, the Financial Industry Regulatory Authority. This is a self-regulating organization that is designed to prevent abusive practices, including those that, while not necessarily fraudulent, could be considered unethical.
Although federal securities laws do not hold commission brokers to a fiduciary standard, some courts have ruled that a fiduciary duty applies, under certain circumstances. Both FINRA rules and federal securities laws restrict commission brokers from participating in certain transactions that may result in potential conflicts of interest.
san francisco financial planner who are commission brokers, and their agents must register with, and be licensed by, the state of California in order to conduct business.
Independent investment advisor
An independent advisor operates as a free agent. He is free to select the best opportunities for you, whether that opportunity lies in the stock and bond market, or is found in less traditional areas. He can survey investment vehicles, mortgage brokers, and insurance offerings, in addition to monitoring your 401(k) and income taxes.
Federal law regards an independent investment advisor as a fiduciary, meaning that person has a duty to serve the best interest of the client, and may not put his own interests ahead of those of the client. A fiduciary is expressly prohibited from making any purchase or sale for a client without disclosing certain information, in writing, to the client and obtaining the client’s consent prior to the transaction.
Duties of loyalty and care are included in the fiduciary standard. Any potential conflict of interest must either be eliminated, or fully disclosed to the client. In additional to federal regulations, a san francisco independent adviser must adhere to the strict laws of the state of California.
Which one is best for you?
Many people mistakenly think that because a commission broker does not charge a separate fee for his services, they are free. This is not true. The commission broker’s fee is built into the price of each transaction. By paying the independent advisor a set fee, the investor is assured that the advice is not influenced by commission.
