A retail customer that intends to buy and hold a long-term investment may find that paying a one-time commission to a broker-dealer is more cost effective than paying an ongoing advisory fee to an investment adviser to hold the same investment. That same investor might want to use a brokerage account to hold those long-term investments, and an advisory account for other investments.
Nonetheless, whether a you chooses a broker-dealer or an investment adviser (or both), the recommendation or advice is required to be for your best interest. Moreover, broker-dealer or an investment adviser cannot place their own interests before yours.
Neither investment advisers nor broker-dealers are required to recommend the single “best” product. Many different options may in fact be in your best interest, and what is the “best” product is likely only to be known in hindsight.
In the U.S. The broker-dealer must comply with the below component obligations:
- The Disclosure Obligation, which requires full and fair disclosure of all material facts about the scope and terms of its relationship with the customer, including material facts relating to conflicts of interest associated with its recommendations.
- The Care Obligation, which requires brokers to exercise reasonable diligence, care, and skill, to understand the potential risks, rewards, and costs associated with the recommendation, and to consider those risks, rewards, and costs in light of the customer’s investment profile in order to make a recommendation that is in the best interest of the retail customer and does not place the broker-dealer’s interests ahead of the retail customer’s interest.
- The Conflict of Interest Obligation, which requires firms to implement policies and procedures to mitigate (and in some cases, eliminate) certain identified conflicts of interest that create incentives to make recommendations that are not in the retail customer’s best interest.
- The Compliance Obligation, which requires firms to implement policies and procedures.
Similarly, an investment adviser has an obligation to act in the best interest of its client—which is an overarching principle that encompasses both the adviser’s duty of care and duty of loyalty.
Conclusion: it is clear why we can be confused about the differences between brokers and investment advisers. Nonetheless, choose at least one, and make sure it is register.
Therefore, you can use the SEC website at https://www.investor.gov/ in order to find what you need and consult.