What are the different services brokers and advisers offer and which is right for me?
The services you receive will depend on your agreement with the broker or adviser.
Brokers provide services that are generally more transactional and time-specific. A typical broker:
- accepts and carries out orders to buy and sell investments;
- gives recommendations to buy, sell, or hold a specific investment; and
- may agree to periodically monitor investments in some accounts.
Advisers provide services that are generally more focused on your portfolio or account over time. A typical adviser:
- gives ongoing advice about your investments – whether to buy, sell, or hold a specific investment;
- provides ongoing monitoring of how your investments are doing; and
- manages some accounts (called discretionary accounts) by making trades for you.
For more information, check out this video from SEC Chairman Jay Clayton
Know the difference between how a broker and an advisor get paid.
Typically, you pay a broker a commission every time you buy or sell an investment which is based on transactions. You may pay other fees and costs related to services and investments. From a cost perspective, you may prefer a transaction‐based fee if you do not trade often or if you plan to buy and hold investments for longer periods of time.
Typically, you pay an adviser an ongoing asset-based fee based on the total value of your account because it is based on an ongoing relationship, not transactions. You may pay other fees and costs related to services and investments. An asset‐based fee may cost more than a transaction‐based fee, but you may prefer an asset‐based fee if you want ongoing advice or want someone to make investment decisions for you. You may prefer a wrap fee program if you prefer the certainty of a single fee for advisory services and commissions.
For more information, check out this video from SEC Chairman Jay Clayton.
06/01/20 – It is important to understand the difference between brokers and investment advisers. They differ by the types of services they provide and secondly, how they are paid for those services. Watch this short 2:45 minute video to help understand these differences.
05/14/20 – The SEC adopted a new rule on June 5, 2019 requiring registered investment advisers and registered broker-dealers to provide a brief relationship summary, Form CRS, to retail investors.
Form CRS will provide information specifically tailored to educate retail investors about financial professionals. It will include:
- search tools to research firms and financial professionals;
- information about brokers and advisers; and
- information about brokers’ and advisers’ different services and fees.
What is Form CRS?
Form CRS is a client or customer relationship summary. Advisers and brokers are required to deliver a relationship summary to you beginning in summer 2020. The relationship summary contains important information about the adviser or broker.
Why should I read a relationship summary?
Choosing or continuing to work with a financial professional is an important decision. Advisers and brokers offer different types of services and are paid differently. Reading a relationship summary can help you decide if an adviser or broker is right for you.
What information is in a relationship summary?
A relationship summary tells you about:
- the types of services the firm offers;
- the fees, costs, conflicts of interest, and required standard of conduct associated with those services;
- whether the firm and its financial professionals have reportable legal or disciplinary history; and,
- how to get more information about the firm.
A relationship summary also includes questions to help you begin a discussion with an adviser or broker about the relationship, including their services, fees, costs, conflicts, and disciplinary information.
When will I receive a relationship summary?
Beginning in the summer of 2020, advisers and brokers will give you a relationship summary when starting a relationship with you or when your account changes (e.g., you rollover an IRA). If the information in the relationship summary changes, your adviser or broker will be required to give you a new relationship summary or communicate the changes through another disclosure that must be delivered to you. You can also always request a relationship summary.
If you already have a brokerage or advisory account, you will get your first relationship summary by July 30, 2020.
You will be able to find a firm’s relationship summary and find more information about a firm using the free and simple search tool on Investor.gov.
More information about Form CRS.