RIA vs. Broker – Do You Know the Difference?

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Do you know if your financial advisor is legally required to act in your best interests?  Many individual investors think the answer to this question is obvious – “of course they are”.  Unfortunately, and surprisingly to many investors, that’s not necessarily the case.  In the financial services industry, so-called advisors operate under many different titles – Financial Advisor, Financial Planner, Stockbroker, Registered Investment Advisor.  Regardless of the title, many investors make the assumption that their financial professional is always looking out for their best financial interests.  What may come as a shock is that only Registered Investment Advisors are legally required to look out for your best financial interests.

On our most recent radio broadcast, attorney Eddie Greim, partner with Kansas City law firm Graves Bartle Marcus & Garrett, joined us to discuss the differences between a Registered Investment Advisor and a Broker (which is what many so-called “advisors” actually are) and the impact these differences can have on the types of investment product recommendations you receive.  You might be surprised to learn that it can be perfectly ok for brokers to sell you the highest fee mutual funds and receive a nice fat commission check for doing so.  At The ETF Store, as a Registered Investment Advisor, we must put our clients’ interests ahead of our own and we don’t receive commission checks for recommending expensive investment products.  We believe that it’s of the utmost importance that you understand whether the financial professional you’re using is a Registered Investment Advisor or a Broker – the potential impact of this distinction can have a profound effect on your long-term investment returns.  Below is a quick chart on the key differences between the two:

broker v ria

In our weekly ETF Spotlight segment, we examined one of the least expensive ETFs on the market and one that offers exposure to 750 of the largest U.S. companies (Schwab US Large-Cap ETF – ticker SCHX).  For an unbelievable 0.04% annually, you can obtain broad based exposure to the US stock market and own companies like Apple, Exxon, Google, and GE.  Compare this ETF to the average actively managed mutual fund which has an expense ratio of around 1.50% and underperforms its benchmark the majority of the time.  Learn more about SCHX by visiting www.etfbuzz.com.