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Not all financial professionals are the same. The person helping you with your money might be an investment advisor, a broker, or both. Understanding the difference matters because it affects whose interests come first.
The Key Difference: Fiduciary vs. Suitability
This is the most important distinction. It determines the legal standard your financial professional must follow when giving you advice.
Investment Advisors: The Fiduciary Standard
Fiduciary duty means the advisor is legally required to put your interests ahead of their own. They must recommend what's best for you, even if it pays them less.
Registered Investment Advisors (RIAs) are regulated by the SEC under the Investment Advisers Act of 1940. They must:
Act in your best interest at all times
Disclose all conflicts of interest
Provide advice based on your specific goals and situation
Be transparent about how they're compensated
Brokers: The Suitability Standard
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The suitability standard only requires that recommendations be "suitable" for you—not necessarily the best option available. Brokers can recommend products that pay them higher commissions, as long as the product isn't clearly wrong for your situation.
Brokers (also called "registered representatives") are regulated by FINRA under the Securities Exchange Act of 1934. While 2020's Regulation Best Interest (Reg BI) strengthened their obligations, it still falls short of full fiduciary duty.
Under the suitability standard, brokers:
Must make "suitable" recommendations, but not necessarily the best ones
Are not required to disclose all conflicts of interest
Often earn commissions on products they sell
May have incentives to recommend certain products over others
Standards Comparison
Investment Advisor
Broker
Legal Standard
Fiduciary (best interest)
Suitability / Reg BI
Regulator
SEC
FINRA
Compensation
Fees (AUM, hourly, flat)
Commissions on sales
Conflicts
Must disclose and minimize
Limited disclosure required
What is Dual Registration?
Here's where it gets confusing: many financial professionals are registered as both an investment advisor and a broker. This is called being "dual registered" or a "hybrid advisor."
About 3 out of 4 registered advisors are dual registered. This means they can switch between roles depending on the service they're providing.
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The problem: A dual-registered advisor acts as a fiduciary when giving investment advice, but may switch to the lower suitability standard when selling you a product. It's not always clear which "hat" they're wearing.
Why Advisors Dual Register
Product access: Some investments (like certain annuities) can only be sold through a broker-dealer
Flexibility: They can charge fees for some clients and commissions for others
Business model: Their firm may require it
Questions to Ask a Dual-Registered Advisor
"Are you acting as my fiduciary right now?"
"Will you earn a commission on this recommendation?"
"Can you put in writing that you'll act as a fiduciary for all advice you give me?"
How to Check Registration Status
You can verify any financial professional's registration:
Being a broker isn't inherently bad—many excellent financial professionals are dual registered. But understanding the difference helps you:
Know what standard of care you're receiving
Ask the right questions about compensation
Make an informed choice about who manages your money
The most important thing is transparency. A good advisor—whether a fiduciary, broker, or both—will clearly explain how they're compensated and which standard applies to the advice they're giving you.