Understanding the Differences between RIAs and Traditional Brokers

Those interested in understanding the differences between Registered Investment Advisors ("RIA") and traditional stockbrokers should read this Bloomberg article--this is one of the clearest and best articles that I have seen on the topic.

Coverage of this issue is typically slanted in favor of the RIA because they are held to a fiduciary standard.  The thinking is that the RIA model will be relatively objective and free of conflicts because it is largely fee-based.

The Bloomberg article does a good job of revealing the fact that the RIA model and the fiduciary standard are not necessarily silver bullets.

It is interesting to note that the broker-dealers that house traditional brokers are subject to minimum capital requirements.  RIAs have no such requirements.  As a result, clients who seek compensation for damages from RIAs may find that there are no meaningful resources to fund compensation.

The number of individuals working within RIA firms (280,000) was also interesting to note.  The combined number of brokers and advisors in the United States—according to the Bloomberg article—is roughly 900,000.  This figure does not include different types of financial advisors (for example, life insurance agents), and the 900,000 total is significantly higher than the total number of doctors (MDs and DOs) and dentists in the United States.   

Source: Bloomberg