Brokers & Advisers

How to identify brokers and financial advisers and understand the asset allocation services they provide.

Brokers and advisors are people who help you invest using an asset allocation.

 

A broker is licensed to buy and sell securities on your behalf. The term "broker" can refer to either a company (e.g., Wells Fargo Advisers) or a person (e.g., Vincent Weir who works at Wells Fargo Advisers). The term "stockbroker" is rarely used and has mostly been replaced by the term "Financial Advisor" or "Financial Consultant" or "Investment Advisor."

There are several types of brokers which vary in terms of cost and the types of services they provide:

  • Discount brokers. These firms are described in more detail on the Discount Brokers page.
    • Traditional discount broker
    • Portfolio-oriented discount broker
    • Trading-oriented discount broker
  • Full-service brokers. These firms are described in more detail on the Full-Service Brokers page.
    • National (also known as "wirehouse")
    • Regional
    • Independent
    • Insurance-affiliated
    • Bank-affiliated

 

An advisor provides financial advice and the term "advisor" (also spelled "adviser") can refer to either a company (e.g., SMS Capital Management, LLC) or a person (e.g., Steven Sheldon, the owner of SMS Capital Management). There are different types of advisors including online Robo-Advisors and local Registered Investment Advisors.

 

And to further complicate things, it's possible for a person to be both a broker and an advisor.

 

To sort it out, you can ask someone "Are you a Registered Investment Advisor (RIA)?"

  • If yes, you can examine their public disclosure form (Form ADV) the Investment Adviser Search page on the website of the Securities and Exchange Comission. 
  • If no, ask "What professional designations do you have?"

You can also refer to the Directory of Financial Designations, which explains the meaning of the letters after someone's name.

 

 

Broker and Advisor Comparison

Services Provided Discount broker + model portfolio Full-service broker Online Robo-adviser Local Financial Advisor
Cost. Based on fees for investing $500,000 for 1 year  $539 per year
(see note 1)
$8,000 per year
(see note 2)
$1,250 per year
(see note 3)
$5,000 per year
(see note 4)
Advice. Offers advice tailored to your particular situation? Limited Yes Limited Yes
Investment choices. offers both tactical and strategic portfolios? Yes Yes No Yes
Rebalancing. Can automatically adjust your portfolio to match the desired asset allocation? No, but rebalancing tools are available Yes Yes Yes
Other services. Offers a range of other services (banking, insurance, estate planning, annuities, IPOs)? Limited Yes No Limited
 
Notes:
1. VizMetrics model portfolio (Advanced Subscription at $249 per year) + Folio Investing account ($290 per year for unlimited trades)
2. Merrill Lynch Managed Accounts, fee is 1.6% of assets under management (per year)
3. Wealthfront, fee is 0.25% of assets under management (per year)
4. Typical fee is 1% of assets under management (per year)