Advisor vs. Broker

Advisor vs. brokerThere are many questions and much confusion regarding who or what an “investment advisor”, “financial planner”, “financial consultant”, “financial advisor” “Registered Representative” or “broker” actually is and the credentials needed to qualify for such a title.  There is a lot of legal leeway granted as to the title someone chooses, however, there are some important distinctions as to whether someone is a Registered Investment Advisor (“RIA” or “Advisor”) or a Registered Representative (“RR”, “broker” or one that is usually employed by a broker-dealer).  Please note that it is our position that it is always up to the individual Advisor or broker to act with integrity regardless of how they are compensated, who they are employed by, what they call themselves and what legal standard they are measured against.  However, there are some important differences you need to be aware of when selecting with whom you are going to trust some of the most intimate details of your life.

Legal Standard:  Fiduciary vs. Suitability
The legal standard by which the individual is measured against is quite different.  As an RIA, Principia Wealth Advisory is held to a fiduciary standard when rendering advice and making recommendations to clients.  Law.com defines a fiduciary as “a person who has the power and obligation to act for another under circumstances which require total trust, good faith and honesty.”  In short, it is our ethical AND legal responsibility to act in your best interest.  The suitability standard requires RR’s and brokers only to recommend investments that are suitable for you.  In other words, the broker can legally put his own interests above yours as long as he makes a “suitable” recommendation.  We feel that this is an important distinction to understand as this can have profound effects on what investments are recommended for your account.

Compensation:  Advice vs. Transactions
RIAs are paid an advisory fee directly from the client, usually as a percentage of assets under their care, for advice and service.  Principia Wealth Advisory has no incentive to recommend one security over another and has no incentive to create transactions.  Brokers are paid commissions, usually directly from the investment company that was recommended, and as such there is a subtle pressure to create transactions.  Further, brokerage firms are often investment product manufacturers who see their brokers as the prime distribution channel to sell their products.

Reporting: Transparency vs. Disclosure
At Principia Wealth Advisory, we want you to fully understand all of the fees you are paying for quality advice.  These are your hard earned resources and you ought to have the highest standard of transparency in your financial dealings.  Brokers will usually follow all of the legal mandates of disclosure, however, that usually comes in the form of prospectus booklets and voluminous, lengthy legal documents.  Our reporting, as well as that of your custodian, is designed to give you meaningful, relevant and straightforward information.

Asset Custody: 3rd Party Custody vs. Self Custody
The recent fraud and Ponzi schemes that have recently been perpetuated on investors all have a common thread – the offending parties had direct control over both the clients’ assets and the information about those assets (e.g. account statements or market values).  At Principia Wealth Advisory, we do not take custody of your assets and have implemented careful safeguards to ensure that your assets are well cared for by a sizable and reputable custodian.  The custodian reports directly to you which provides you an opportunity to verify any account information that is disseminated by Principia and feel at peace with the security of your resources.


Principia Wealth Advisory, LLC is a Registered Investment Adviser.
Advisory services are only offered to clients or prospective clients where Principia Wealth Advisory, LLC and its representatives are properly licensed or exempted.
This website is solely for informational purposes. No advice may be rendered by Principia Wealth Advisory, LLC unless a client service agreement is in place.