THE DIFFERENCE BETWEEN BROKERS

AND ADVISORSBy Anthony Pellegrino and Goldstone Financial Group

O R I G I N A L A R T I C L E : K I P L I N G E R . C O M

BROKERS VS. ADVISORS01

WHAT AMERICANS FAIL TO REALIZEYou’d think with all the money

involved, investors would be clearer

on the roles and responsibilities of

their financial professionals. Instead,

they too often hand over their life

savings to the person who promises

the best returns.

A broker, in most cases,

sells products and makes

trades happen. He is

held to a “suitability

standard,” which means

he must provide options

that suit the client’s

needs, but those choices

might not be the least

expensive or the best

match for the client’s

goals.

An adviser, or, more

specifically, a Registered

Investment Adviser, is held to

the “fiduciary standard.” He

offers impartial guidance

and puts his client’s best

interests ahead of his own.

His compensation is usually

fee-based; he might get

paid per hour or service, but

most likely he’ll get a

percentage of your portfolio

— say 0.25% per quarter, or

1% annually.

BROKERS VS ADVISORS02

BROKERS  ADVISORS

COMMISSION-BASED

BROKERSThere are pluses and minuses to

both arrangements. A broker, for

example, can often provide

valuable insights and advice

about the market.

PAID ON PERFORMANCE

ADVISORSIf you want a financial

professional who’s truly looking

out for you long-term, remember:

A fee-based adviser is actually

paid on performance. He makes

more money when you make more

money.

BROKERS VS ADVISORS03

TAKE THIS EXAMPLE...If you’re in the retail world of investing — if you’re just a

common investor who is working with one of the big

brokerage houses out there — you’re likely paying some

costs that you aren’t even aware of.

Let’s say you’re a do-it-yourselfer and you decide to

invest in a bunch of mutual funds. Your “expense ratio”

could be made up of several fees: an administration fee

that could range from 0.2% to 0.4% annually, an asset

management fee that could be anywhere from 0.5% to

1%, a 12b-1 annual marketing or distribution fee, etc.

Put them together, and add in trading costs that could

be another 1%, and you easily could be paying 2% to 4%

and not even know it.

BROKERS VS ADVISORS04

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Oakbrook Terrace, IL 60181

Twitter: @GoldstoneFG

Article by Anthony Pellegrino

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