How to Choose Between Brokers or Registered Investment Advisors

financial planning, registered investment advisor, Gertsema Wealth Advisors, St. Joseph, Missouri

By Mike Gertsema, CEO & Wealth Advisor

Recently, we had a prospective client visit us to discuss retirement planning. They had no idea if they were ever going to be able to retire and were concerned they would have to work until the age of 70.

We had a pre-meeting to gather all their financial information: income tax returns, retirement plans, 401(k) accounts, social security information, bank accounts, brokerage accounts, any debts, and other items. Once we determined the net amount that the clients are currently living on now, the amount they were saving annually, and determined they’d like to continue with the current lifestyle they enjoy today we moved forward to plug in all their personal information.

That’s the Question

Once they saw the good results on a 65-inch monitor, it left them with additional questions. Can we retire sooner than we expected? When should we take our social security benefits? Can we spend more in retirement for traveling, are there income tax strategies, estate planning ideas, and what if we want to downsize?

The biggest and most glaring question was, “Why hasn’t our current advisor ever done this for us? Why hasn’t he asked for all the information you did”?

He has stock, annuities, mutual funds, new investment program ideas that are supposed to make me money, but he doesn’t know my goals, how much money I need for my goals, and what type of investment I need. Do I need tax-deferred, tax-free, taxable, tax-efficient? What’s my effective income tax rate, should I be saving more, and how much risk do I need to take to accomplish my goals?

In defense of the prospective client’s broker, he or she may not be compensated or trained to do comprehensive financial planning or advising. He or she wants to help them make money with investment ideas, has given them the basic information so that they can make a suitable investment recommendation, discusses what he or she believes will work for them, and what he or she is licensed to sell them.

So, in a sense you are paying a commission for a suitable investment with the hope of making money. There is nothing right or wrong with the brokers or the services they provide, as long as the consumers understand the difference between a broker or a registered investment advisor.

Commission or Fee-Based?

The brokers use different titles like Investment Executive, Financial Advisor, Vice President of Investments, Senior Vice President and are not held to the same standard as the Registered Investment Advisor (RIA). In most cases, they do not hold themselves out as a fiduciary and are compensated with commissions or a fee for the assets under management with the goal of making the client money.

Sometimes the brokerage firm’s culture is designed to help the brokers gather assets using financial planning programs to enable the broker to make a sale, which enables the brokerage firm to make profits. The culture of the firm is not to do comprehensive financial planning and advising, it is to make sales and generate profits.

The brokerage firms have been around for years and have built a culture of investing and invested heavily in the expertise investments. They are the pioneers of stock research, bond research, options trading, stock recommended lists, and many other investment products. Their model is built on finding investment products, stocks, and bonds to sell the consumers.

A Fiduciary Responsibility

A Registered Investment Advisor (RIA) is a person or firm who advises individuals on investments and manages their portfolios. RIAs have a fiduciary duty to their clients which means they have a fundamental obligation to provide investments and advice that always acts in their clients’ best interests, not theirs or the company’s.

They may bill per hour, a flat fee per customer, on assets under management, or a combination. They generally provide a comprehensive financial plan, give advice and recommendations, and keep in touch with you on a regular basis to update you on your progress and notify you of changes that may affect your plan. They work in your best interest and as a fiduciary in action, not in name only. So, if you’re looking for a great stock idea, like to trade stocks frequently or to speculate on investments, the RIA is probably not a very good fit.

The RIA’s job is to determine your goals, including a comprehensive financial plan, risk analysis for your investments, determine the needed rate of return required for your goals, implemented income tax strategies, and is making changes as your goals change, the economy changes, or the laws change.

The RIA is more strategic in their approach because most of their clients are different, which causes them to spend more time on individual details, goals, and strategies to enhance their client’s wealth. They are also concerned with costs of investing, using low-cost exchange-traded funds, stocks, and other low-cost investments to enhance their client’s profits and achieve their financial goals. They have a fiduciary responsibility to do everything possible to do what’s in the best interests of the client.

Comprehensive or Investment-Focused?

The next question to ask yourself, do we need a broker or a registered investment advisor? You can invest online with zero commissions today, so do we need brokers to sell us something? You are paying for the broker’s expertise in explaining the investment product, stock they are selling, and the firm’s research.

What to buy may not be the difficult part, but what to sell and when to sell is. The broker has no obligation to tell you, and sometimes when they do recommend selling or buying consumers question their motives. It really comes down to each individual and how they feel or think about it.

Technology is changing the world as we know it, allowing the consumer to go online and do almost anything they want by themselves. There are no-load mutual funds and exchange-traded funds (ETF) available to buy, trade, and speculate in as well.

Some people enjoy trading, while others would like to avoid the stress and have other have interests that they may want to pursue instead of worrying about the stock market and their portfolios.

When it comes to the register investment advisor, it’s much the same situation. Most savvy investors can invest and put an investment plan together online for little cost. They can update it themselves and make changes as their goals change, the tax laws change, or they see an economic change. They can also use different calculators and questionnaires to determine a diversified portfolio.

The question is, do you feel comfortable doing your financial plan, investing, tax planning, estate planning, keep up with changes, or want to pay for the expertise?

Back to the Original Question

Now as I return to the original questions from our prospective clients, “Why hasn’t our current advisor ever done this for us and why hasn’t he asked for all the information you did”?

They didn’t realize the differences between the traditional brokers and the register investment advisor. They, like most people, think they are all the same. Unfortunately, many consumers are frustrated and think they must tolerate bad service below their expectations or decide to do it themselves. They have choices and need to realize what’s available to them today.

If you have questions on whether you’re working with the broker or advisor and would like to learn more to determine if your advisor meets the standards, here’s a quick test to help you answer the question, check it out 10 Questions to Determine if Your Advisor Meets Standards.


For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

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