Stockbroker or Financial Advisor?

The term “financial advisor” has traditionally been loosely defined, and it may describe any person who sells financial advice, manages investments for others, or brokers financial deals in return for compensation. Such an advisor might be a licensed stockbroker, banker, certified public accountant (CPA), insurance agent, registered investment advisor (RIA), or a lesser-qualified person. To avoid confusion and provide better clarity for the general public, a professional financial advisor is generally qualified and regulated either as a licensed stockbroker or a registered investment advisor (RIA), or other designation such as a Certified Financial Advisor (CFA).


A stockbroker (or registered representative) must pass the Series 7 and Series 63 examinations by FINRA, and work with an established brokerage; he or she is also regulated by the SEC and state agencies. Stockbrokers are responsible for ensuring that particular investments are suitable for individual clients. On the trading side, brokers are responsible for ensuring the best execution of client orders. A broker earns income from commissions on sales and purchases of stocks and other equities, mutual funds, and other investments. Brokers sometimes sell in-house financial products whose returns may fall short of investors' expectations.

Registered Investment Advisors (RIAs)

Candidates for registration as an RIA must successfully pass FINRA's Series 65 examination. RIAs are usually also required to register with the SEC, and sometimes with the state authorities where they conduct business; the amount or type of assets under management may also require additional licensing. A registered investment advisor may be further qualified as a Certified Financial Planner (CFP), Chartered Financial Analyst, or Certified Financial Advisor (CFA). Advisors with these certifications often work as management staff for mutual funds, investment banks, and hedge funds. CFAs and other professional financial advisors are usually paid a set fee for their advice, and they sometimes also receive a percent for gains on the assets they manage, or a percent of the assets themselves.

The benefits of working with a professional financial advisor

The primary benefit of working with a fee-compensated professional advisor is that the interests of the advisor are closely aligned with those of the investor. In contrast, stockbrokers are paid by commissions, so they depend on purchases and sales of securities which may not always precisely meet investors' goals. Also, professional financial planners and advisors are often more qualified than stockbrokers, since certified financial advisors must have several years of specific work experience, in addition to the academic knowledge credentials documented under these financial industry-certification programs, plus requirements for continuing education. Financial professionals certified as CFA and CFP are employed by leading financial-services firms because of their documented ability to analyze investments and provide sound advice to investor-clients. A professional advisor does background research and distills investment propositions facing investors; the advisor can help an investor with both planning and execution. By providing top-quality investment analysis and advice alongside winning portfolio management, successful financial-services firms build deep, broad relationships with satisfied clients.

How to choose a Certified Financial Advisor or Certified Financial Planner

Choosing an advisor can be an easy, intuitive process for investors who take time to do the homework. Although some investors focus on fees, perhaps the most important consideration is to first decide the type and level of service required-- whether an online discount stockbroker, or a full-service bricks-and-mortar firm staffed with a Certified Financial Planner or Certified Financial Advisor-- and the reasonable cost of that service. Some investors need only a discount online trading platform, while others will greatly benefit from the personalized advice and financial planning available from CFPs and CFAs. A professional financial advisor cannot predict the future, yet he or she can help investors plan for the future. Good communications are the key-- Successful investors ask the right questions, and a leading financial-services firm delivers the best answers.