What’s the Difference Between an Investment Adviser and a Broker?

Investing can be a great way to grow your money. Retirement accounts like 401(k)s and IRAs aren’t just savings accounts. Those funds are invested so that they grow much more quickly than money in a regular savings account that just accrues interest over time.

Retirement accounts aren’t the only way that you can invest your money, however, and an investment advisor or an investment broker can help you with your investment management in Orlando needs. It’s important, though, to know the difference between the two so that you find a financial professional who can best meet your needs.

What Is an Investment Broker?

An investment broker is a financial professional who makes investment trades on behalf of a client. Typically, brokers follow the orders of their clients rather than making decisions on their behalf. The role of an investment broker comes from a time when individuals didn’t have access to markets themselves and had to make all trades through a broker.

Because individuals can now make investments on their own via the Internet and mobile apps, many brokers are not offering other financial services as well so that there’s still a reason for individual investors to hire them. Brokers earn a living based on commissions and so other services are often needed in order to justify those commissions when individuals can make trades on their own.

What Is an Investment Advisor?

An investment advisor is someone who both offers investment advice to clients and in many cases manages clients’ investment portfolios for them, making trades and investment decisions independently of the client. An investment advisor is required by the Investment Advisers Act of 1940 to hold to a fiduciary standard, which means that all actions done on behalf of a client must be in the client’s best interest, not just beneficial for the client.

This means that an investment advisor can’t make a trade that, while good for the client, is better for the advisor because of a special deal or other type of commission. A fiduciary is bound to only make the best possible actions for their clients.

How Are Investment Advisors and Brokers Different?

Usually, investment advisors are held to a higher standard than investment brokers are. This is because investment advisors are making investment decisions on their clients’ behalf while brokers are following their clients’ orders. Investment advisors have to follow Securities and Exchange Commission (SEC) regulations and may also be regulated by state and local organizations.

Do I Need an Investment Advisor or a Broker?

Whether you need an investment advisor or an investment broker depends on your investment needs. Investors who want advise from a professional regarding their investments or who want their investments managed by a professional should seek out an investment advisor. Investors who want to make their own investment decisions may choose to go with a broker instead. Because many brokers now offer other services, it’s important to research what each individual broker or advisor offers before making a decision.