One key distinction among financial professionals is their focus. For instance,
registered investment advisers (RIAs),
also known as financial advisers, emphasize financial planning and point you toward the types of investments that may fit into your plan. On the other hand,
registered representatives (RRs) — more commonly known as stockbrokers — have traditionally been transaction based. But today, many stockbrokers may also provide financial advice as well as act on your behalf to execute your investment decisions.
Another key differentiator is regulatory oversight. RIAs are regulated by the
Securities and Exchange Commission (SEC)
under the rules of The Investment Advisers Act of 1940. This act requires RIAs, who are paid for their advice, to act solely in the best interests of their clients.
RRs are regulated by the Securities Act of 1934 and by the
Financial Industry Regulatory Authority (FINRA),
formerly the NASD. They must abide by a suitability standard, which means that the investments they recommend must be suitable for the particular client.
Different perspectives
The Financial Planning Association, the professional organization to which many financial advisers, including RIAs, belong, believes that stockbrokers who charge their clients an annual asset-based fee should be regulated by the Advisers Act of 1940. Stockbrokers disagree, arguing that an additional layer of regulation is unnecessary and counterproductive.
