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The difference between an investment advisor and a broker.

Updated: Aug 22, 2023

Justin Haschke


Choosing an investment advisor is an important decision for finding help in planning for your future.

One of the most important decisions you’ll make is how your relationship with that advisor is structured. Specifically, you’ll need to decide whether you want to operate with an advisor or an agent of a broker/dealer.

While both professions are regulated, they have different legal and ethical obligations to their clients. In this blog post, we’ll explore what we feel are the advantages of working with an investment advisor over a broker.

First, let’s identify the differences there between the requirements of investment advisors and a broker/dealer.

Investment advisors have fiduciary duties. Investment advisors have a duty of loyalty, meaning they must place the interests of clients over their own and must avoid, disclose and manage any material conflicts of interest acting without regard to the interest of the advisor’s employing firm.

Investment advisors are also obligated to a duty of care and should act with prudence and diligence when making recommendations taking into consideration a client’s goals, risk, tolerance and objectives.

Additionally, investment advisors have a duty to follow client instructions through respecting and complying with obligations, duties, policies and restrictions of any client engagement. It should also be noted that investment advisors are obligated to advise and monitoring for their advisory clients on an ongoing basis.

On the other hand, financial professionals that are registered agents of a broker/dealer are not required to hold the same ongoing fiduciary standards of investment advisors. Registered financial professionals of a broker/dealer are required to follow Regulation Best Interest (“REG BI”).

The FINRA rule establishes a “best interest” standard of conduct that broker/dealers must follow when recommending a transaction or investment strategy that involves securities.

They must also provide a brief client relationship summary (“Form CRS”) to their retail investors.

Now, let’s explore the advantages working with an investment advisor.

Investment advisors build long-term relationships with their clients:

Because of their ongoing fiduciary duties, advisors tend to build long-term relationships with their clients, which is advantageous for both parties. Because investment advisors are required to act in their client’s best interests, they have an incentive to provide advice that aligns with their client’s long-term financial goals.

This leads to a higher level of trust between the advisor and client, which can lead to a more productive and effective working relationship.

Investment advisors focus on comprehensive financial planning:

Investment advisors tend to focus on comprehensive financial planning, which means they take a holistic approach to their clients’ financial lives. They don’t just focus on investments or selling products. Instead, they work with their clients to create a customized financial plan that considers their entire financial situation, including retirement planning, tax planning, estate planning and more.

Investments advisors have a duty to provide tailored advice:

Because investment advisors have a fiduciary duty to act in their client’s best interests, they focus on providing advice that’s tailored to their client’s specific needs and goals. This can help clients save money in the long run and avoid costly mistakes.

Because of the ongoing fiduciary duties held by investment advisors, working with an investment advisor can have several advantages to individual investors over being a broker.

Investment advisors hold ongoing fiduciary duties legally required to act in their client’s best interests, build long-term relationships with their clients, focus on comprehensive financial planning.

These advantages can lead to a higher level of trust and satisfaction between the advisor and client, which can be beneficial for both parties in the long run.


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