What differentiates Registered Investment Advisors from other financial service providers, such as stockbrokers or financial planners?
The Investment Advisers Act of 1940 states that RIAs are required to maintain a fiduciary responsibility to always act in their clients’ best interests. In other words, RIAs must always put their clients’ interests ahead of their own. RIAs are required by law to do this, while stockbrokers and financial planners are not. Another important difference is in the compensation of RIAs which is often a fee that is based upon a percentage of assets under management. This is similar to how a mutual fund charges its clients, but differs greatly from flat-fee providers, which charge a set fee regardless of asset values or the results of their advice, and commission-based providers, which earn fees with each transaction. Many (but not all) financial planners charge flat fees for advice, and most brokers and insurance agents earn commissions with every transaction. Read more about these differences NASAA.org.
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