There are significant differences between SEC-Registered Investment Advisors, like Hudson Valley Wealth Management, and brokers and bank representatives.

“You should fire your broker and find an investment advisor. Brokerage firms would like you to think that they perform the same functions as investment advisors. Many brokers call themselves ‘financial consultants’ or ‘financial advisors’. But they are not the same as independent investment advisors…an investment advisor’s fiduciary duty is on a higher plane, like that of a lawyer, a trustee, or the executor of an estate.”

– Arthur Levitt, Former SEC Chairman

How Are Investment Advisors Different From Stockbrokers?

There are a number of key differences. Some of the main ones are:

  • Investment advisors have a fiduciary duty to act in the best interests of their clients at all times. Brokerage firms generally are not fiduciaries to their customers and therefore do not make decisions that are solely in their customers’ best interests.
  • Investment advisors provide their clients with a Form ADV that describes exactly how the investment advisor does business and obtains the client’s consent to any conflicts of interest that do exist in the investment advisor’s
  • business. Brokerage firms are not required to provide customers with any comparable type of disclosure.
  • Investment advisors cannot trade with their clients as principal except in extremely limited circumstances. Brokerage firms often earn significant undisclosed profits by trading as principal with their customers.
  • Investment advisors charge clients a fee negotiated in advance and cannot earn any other profits from their clients without the clients’ prior consent. Most investment advisors are paid an asset–based fee, so their interests are aligned with their clients. Brokerage firms’ revenues may increase even if the customer’s assets shrink. Investment advisors manage money in the best interests of their clients.
  • They do not engage in other business activities like investment banking or underwriting, which brokerage firms do. These other businesses may cause a brokerage firm’s interest or attention to focus on other areas of the firm outside of their retail brokerage business and customers.

What Are the Advantages of Working With an Independent Registered Advisor Over a Stockbroker?

Independent Registered Investment Advisors (RIAs) are held to a higher standard than stockbrokers when it comes to putting investors’ before their own. Independent RIAs have what is called a “fiduciary duty” to their clients, which means they must, among other things:

  • Act in the best interest of their client
  • Observe procedures regarding the allocation of investment opportunities
  • Monitor for best execution of trades
  • Have policies regarding affiliated broker–dealers and maintenance of brokerage accounts
  • Disclose any and all conflicts of interest
  • Adopt and administer a code of ethics
  • Stockbrokers are held to only a “suitability” standard on the part of their broker–dealer. There are two types of “suitability”:
    1. “Reasonable Basis” Suitability – the broker-dealer must believe that the recommended security is suitable for any investor
    2. “Customer–Specific” Suitability – the broker–dealer must believe that its recommendation is suitable for that particular investor