Brokerage Account

A brokerage account is an account through which a stockbroker provides transactional capabilities and investment advice if—and only if—that advice is incidental to their brokerage business. It is important to understand that a brokerage account is very different from an advisory account. Unlike a Registered Investment Advisor (RIA), a stockbroker is not obligated to act in the best interests of their clients. In other words, stockbrokers do not act in a fiduciary role for their clients, and there may be clear conflicts of interest between the stockbroker’s objectives and the objectives or best interests of the client. For example, stockbrokers may have strong financial incentives to sell products that are manufactured or underwritten by their brokerage firm, and those products may not be in the best interests of the client. Rather than fiduciary obligations, stockbrokers are held to something called a suitability obligation. This basically means that the broker must believe that their recommended security is suitable for any investor and for the particular investor to whom it is sold. This is a very different—and much lower—standard than a fiduciary obligation. Also see the glossary definition for advisory account.

Types of Financial Advisors

Fee Only Advisor

NAPFA Provides Consumers with Quality Control while Maintaining Flexibility for Financial Advisors

NAPFA is the National Association of Personal Financial Advisors.

NAPFA membership consists of financial advisors who provide comprehensive...


Financial Planners Concerned about Watered-Down Fiduciary Standards

The Obama Administration is interested in reform that would remove some of the conflicts of interest that exist in the world of financial advice. Financial planners, however, are concerned that these regulatory proposals which are intended to impose fiduciary obligations on all types of financial advisors may result in overall standards that are less stringent than what currently exists. Current fiduciary standards apply to an advisory account and largely impact registered investment advisors (...

Independent Financial Advisors Gaining Market Share

The Wall Street Journal reports that customers are moving towards independent registered investment advisors (RIA) and away from Wall Street brokerage firms. RIAs brought in $108 billion in new assets in 2008 while brokerage firms lost $8 billion. The change is seen in large part as a migration towards more objective financial advice. A registered investment advisor acts as a fiduciary , offers an advisory account , and is free of many of the potential conflicts of interest that are inherent in...

Obama Administration Proposes Fiduciary Standards for Brokers

The Obama administration's proposed financial services regulatory overhaul may have a profound impact on the way that investment advice is disseminated in the United States.

The administration's proposal would impose a...