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Stockbroker Vs. Investment Adviser: Do You Really Know the Difference?

Understanding the Distinctions Between Stockbrokers and Investment Advisers

Understanding the fundamental differences between a stockbroker and an investment adviser is crucial. Each one has different roles, standards, and regulators. Even the route you take to hold an investment adviser or stockbroker liable for losses can be different.

Below is information that will help you recognize the distinction between the two professionals:

What is a Stockbroker?

  • A stockbroker, also called a Registered Representative, is someone who is licensed to sell securities and registered with a FINRA-member broker dealer. FINRA regulates all stockbrokers.
  • The products stockbrokers can sell you depend on the licenses they hold. For example, a stockbroker who has passed the Series 6 exam can sell only mutual funds, variable annuities, and similar products, while the holder of a Series 7 license can sell a broader array of securities.
  • Generally, a stockbroker will need to obtain a client's permission before making a trade (unless the stockbroker has written authority to make trades without a client’s permission).
  • When a registered financial professional suggests that you buy or sell a particular security, he or she must have reason to believe that the recommendation is in your best interest based on a host of factors, including your income, portfolio, and overall financial situation, your tolerance for risk, and your stated investment objectives.
  • A stockbroker is usually paid on a per-trade basis as a commission.
  • Claims against stockbrokers are almost always handled in mandatory, binding securities arbitration.

What is an Investment Adviser?

  • An investment adviser is someone who is licensed and compensated for providing investment advice.
  • Investment advisers are usually paid as a fee percentage based on the assets being managed.
  • Depending on the size of the investment adviser, they may be registered with and regulated by, either the SEC or their state securities department.
  • Investment advisers are considered fiduciaries to their clients and are required to act in the best interest of their clients at all times.
  • An investment adviser typically has discretion over client accounts (through a "power of attorney") and therefore has the authority to buy and sell investments without obtaining approval before each transaction.

Is Arbitration Different for Stockbrokers and Investment Advisers?

FINRA Arbitration is the way of the world in cases against stockbrokers and FINRA-member broker dealers. Sometimes, claims against investment advisers can also be pursued through FINRA arbitration if the investment adviser and investor submit a post-dispute agreement for arbitration. Otherwise, these claims will need to be brought in accordance with the terms of the account agreement between the investment adviser and the customer. In the absence of an arbitration clause or post-dispute agreement to arbitrate, the claims will likely go to court.

When it comes to investment misconduct cases, it's critical to have an experienced investor claims attorney assist with your case for the best possible outcome.

If You've Been a Victim of Investment Misconduct, We Can Help.

When individuals are lured into an investment scam or otherwise harmed by negligent financial professionals, the consequences can be devastating financial losses for victims. Our team of attorneys at Meyer Wilson handles both stockbroker misconduct and investment adviser claims. If you have lost money from an investment and are looking for information about recovering your losses, contact an experienced investment fraud attorney at our office today.To learn if you have a case, call Meyer Wilson at (614) 532-4576 or contact us online.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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