Consumers have many choices when selecting a stockbroker vs. a financial advisor. Some professionals carry more than one designation to serve a wider array of clientele.
However, which type of financial professional actually suits your needs varies widely based on your particular circumstances. Before you sign up with a particular financial or stock advisor, it’s important to understand the differences.
What is a stockbroker?
A stockbroker is a financial professional who makes stock trades on behalf of retail or institutional clients. Stockbrokers carry special licenses to trade for clients and must meet basic ethical requirements.
Financial stock advisors can operate in person and online. Additionally, modern online trading means that everyday consumers can trade a limited or full range of securities in online brokerage accounts or robo-advisors.
Some broker advisors also carry dual licenses to provide more in-depth financial advice. However, this isn’t a requirement.
What is a financial advisor?
Financial advisors are professionals who manage money and offer advice on behalf of clients. Types of advice may include:
· Portfolio or investment management
· Security selection
· Tax and estate planning
· Mortgage planning
· Insurance advice
One crucial difference between stockbrokers vs. financial advisors is that the title of “financial advisor” is somewhat vaguer.
Some so-called “advisors” carry no legal certifications, while others, called fiduciaries, pass professional examinations. Others may operate as investment advisors or broker advisors – both designations that come with particular certification requirements and registration with a state or federal body.
Differences between brokers and financial advisors
Several crucial differences exist between stockbrokers and financial advisors. Here’s what to know before signing on with one.
A fiduciary is a financial professional who is legally required to act in a client’s best interests at all times.
Under the Investment Advisors Act of 1940, all U.S. Securities and Exchange Commission (SEC)-registered investment advisors must follow their fiduciary obligations. However, not all financial advisors must register with the SEC, which is why checking a professional’s certifications is essential.
On the other hand, stockbrokers are not required to uphold fiduciary standards with their clients. Instead, they only have to meet “suitability” standards, which state that the investments they recommend must meet a client’s needs.
In other words, if two differently priced investments are found suitable for a client, the stockbroker can recommend the more expensive option. That said, stockbrokers can’t give advice that directly conflicts with client needs. Stockbrokers do owe fiduciary duties to their broker-dealers – just not their investing clientele.
Generally, financial advisors offer a wider range of services than financial stock advisors and brokers.
Brokers typically operate in investable securities, including stocks, bonds, ETFs or specialty investments.
Meanwhile, financial advisors can offer budgeting, tax, estate, mortgage, long-term planning advice and even insurance packages.
However, some broker advisors offer both services to their clients.
Generally, stockbrokers are paid commissions for trades, either as a flat rate or a percentage of the invested amount.
But as fiduciaries, financial advisors usually use a fee-based structure. These may include a flat or hourly rate or a percentage of assets under management (AUM).
Some combination stockbroker-financial advisors operate on both structures, so asking about a professional’s qualifications is essential.
Stockbrokers are regulated by the Financial Industry Regulatory Authority (FINRA). They usually have to register with the SEC and a self-regulatory organization (SRO) as well.
Whether a generic financial advisor has to sign up with a regulatory agency depends on the scope of their services. For instance, financial advisors who merely offer budgeting services may not have to register with any entity.
However, many operate as investment advisors – complete with certifications – and thus are regulated by the SEC, state authorities and FINRA. Generally, investment advisors who manage over $100 million in assets must also register with the SEC.
Qualifications and certifications
As you might guess, qualifications vary between stockbrokers vs. financial advisors. While almost anyone can become either, registered professionals must pass at least one or more securities license exams offered by FINRA. Before sitting for these exams, the tested individual may also have to be sponsored by an eligible financial firm.
Brokers and broker advisors are required to sit for the Series 7 exam, which allows the individual to recommend and sell a wide range of securities. The Series 6 exam is a narrower exam that allows brokers to deal exclusively with mutual funds.
Generic financial advisors may also sit for the Series 6 and 7 exams to be able to work as financial professionals.
Financial advisors who wish to offer investment services have to take the Series 65 exam, which covers a wide range of material to prepare the advisor to act in clients’ best interests. The Series 65 exam is often used by accountants who wish to enter the investment advisory business.
Do you need a stockbroker or financial advisor?
Whether you need a stockbroker, financial advisor or investment advisor depends on your needs and price range.
If you want to trade stocks, a stockbroker may make more sense.
On the other hand, if you need help with your budget, estate or retirement plan, financial advisors offer more services.
In the modern age, you can also sign up for online brokers and advisors that offer these and similar services. For example, robo-advisors may let you trade a full or limited range of securities, from stocks to ETFs. And some financial advisors offer affordable online advice based on your overall financial picture.
Stockbroker vs. financial advisor? Do your research either way
Stockbrokers and financial advisors share a few qualifications – and yet, each has differences you should be aware of. The right financial professional for your needs will offer the right products at an affordable price and always act in your best interest. No matter what, you should do your research before signing up.
Is having a financial advisor worth it?
Financial advisors can help you make complex financial decisions about your budget, long-term plans and investments. For many people, cutting out the legwork is worth paying for expertise.
What is the difference between an advisory account and a brokerage account?
An advisory account is run by a fiduciary professional legally bound to act in your best interests. A brokerage account is run by a financial professional who only has to make “suitable” recommendations for your situation.
Is having a stockbroker worth it?
Stockbrokers – including online brokers – are often the best way to access the investment markets. In other words, if you want to invest without paying for a high-priced financial advisor, stockbrokers can be worth the price.