RIA vs Broker Dealer

RIA vs Broker Dealer

RIA vs Broker Dealer. To shape your investment strategy so that you can reach your long term goal is why you need a financial advisor. When it comes to expertise or experience or the type of advice they are qualified to offer, financial advisors aren’t all alike. It is important when choosing a financial advisor to work to understand whether the individual or firm you are considering is a registered investment advisor (RIA) or a broker-dealer. Many factors personal to the client in question will decide whether he chooses to work with a RIA or Broker-dealer.

Read Also;

What is an RIA?

A registered investment advisor or RIA is a person or institution registered with the Securities and Exchange Commission SEC). Depending on the firm’s size, registration may also be required with the state’s securities commissions.

Financial advice is offered to clients by RIA including advice which relates to management of investment. Trades may be carried out on your behalf by a Registered Investment Advisor or help you with transaction completion. Specific types of clients may be catered to by RIA and they include high-net-worth individuals or retirees.


RIAs are paid in a form of percentage of assets under their management. Or they may choose to charge an hourly or fixed rate for their services. It is important to note that RIAs are mandated to act as fiduciaries for their clients.

Specific ethical and legal guidelines for how RIAs can manage clients’ accounts have been imposed by the Fiduciary standards. At all times, a registered investment advisor is mandated to work with his client’s best interest while also disclosing any potential conflicts of interest. In order to prevent RIAs from mismanaging client assets for their personal benefits, the fiduciary was designed.

What is a Broker-Dealer?

Investment transactions can be facilitated by a Broker-dealer but they may work with advisors to help clients decide on which securities they decide to buy or sell. Broker-dealers are paid through a commission structure, in which they earn a commission or a fee based on what investment the client makes.

Broker-dealers may be registered with the Financial Industry Regulatory Authority (FINRA) which is regulated under the Securities and Exchange Act of 1934 while the RIAs are required to register with the Security and Exchange Commission (SEC). As such, a certain set standard is set for them when offering financial and investment advice.

Broker-dealers are held to a suitability standard while RIAs are held to a fiduciary standard. This means, any advice offered to clients must be suitable to their client’s needs, but it doesn’t necessarily need to be in their best interest. A broker-dealer in other words is not prohibited from recommending investments that could earn him a larger commission just as long as that investment meets the suitability standard.

RIA vs Broker Dealer


RIA vs Broker-Dealer: Which is Right for You?

It is important to consider what type of advice you are interested in and what kind of fees you are comfortable paying when weighing whether to work with RIAs or broker-dealers. You may be better off working with an RIAs if you want reassurances that your financial advisor is only going to recommend investments that can help you further your goals. With an RIA, you can be rest assured that any advice is purely in your best interest.

With a broker-dealer, no such guarantee exists when working with them. That does not in any way suggest that getting a broker-dealer is a poor choice for seeking investment advice. What this means is that whatsoever advice you receive from a broker-dealer may be influenced at least in part by how large a commission the broker-dealer stands to earn.

When choosing which type of advisor to work with, cost can also be an important consideration. If it would allow you to keep more of your investment earnings year over year, lower advisory fees can be a good thing. It is essential to consider an RIA or Broker-dealer’s past track records. For example, if an advisor or broker dealer has a strong record of producing above average returns for clients then when you pay more in advisory fees may be justified.

How to Choose a Financial Advisor

If you decide between an RIA vs broker-dealer, there are certain things to have in mind, and asking these kinds of questions can narrow down your search for an advisor.

  • Are you held to a suitability standard or are you a fiduciary?
  • Are you fee-based or fee-only, how do you structure your fees?
  • What are your typical clients?
  • What are your typical kinds of investment or securities recommendations?
  • Your overall investment philosophy, what is it like?
  • What’s your preferred method of communication with clients and how often do you communicate with clients?
  • Do you have a team that supports you or will you need me to work with you?

In the case of an RIA, you can ask for a copy of their Firm ADV. Form ADV is the form that required to be registered with the Securities and Exchange Commission and the information included in the form includes specific information about the advisor’s fee structures, assets under management, services offered, whether they have been subject to any legal or disciplinary actions and a whole lot. A copy of their brochure should also be provided by a prospective advisor which will offer more details about their investment strategy, practices, services and fees.

Online tools can be used to review an advisor’s background. Tools like FINRA’s Brokercheck. It is also important to check online reviews of advisory firms if those are available or talk to friends and colleagues who have worked with a particular advisor. This can lend additional insight to help you to decide if a specific advisor or firm is right for you.

RIA vs Broker Dealer


Registered Investment Advisors and broker dealers are both financial service providers. What type of advice you are hoping to receive and what you are willing to pay will decide which of RIA or Broker – Dealer.

A broker dealer has more flexibility when making investment recommendations under the suitability act but an RIA is held to a fiduciary standard, meaning your best interest will always guide their decision making. Paramount, when getting help from financial advisors, it’s important to determine which standard you feel most comfortable with.


Leave a Comment