Investment Advisors and Brokers: Know the Differences

by | Apr 10, 2013 | Asset Management, Podcasts

This week on the Mullooly Asset Management podcast Tom and Brendan talk about the big differences that exist between investment advisors and brokers. The first step in understanding the differences between the two comes from knowing what a fiduciary is. Tom explains to Brendan that a fiduciary is the person who looks after assets on behalf of someone else. The fiduciary is expected to act in the best interests of the person whose assets they’re managing. This is a big responsibility. Another main point that needs to be understood is what a fiduciary obligation is. It’s important to remember that a fiduciary is expected to manage money for the benefit of the other person, and not for the their own profit. This is where you can start to make a distinction between investment advisors and brokers. Investment advisors work for the client, but brokers are an employee of their firm. Brokers are expected to increase sales and create revenue for their firm.

So who actually has a fiduciary obligation to their clients? The answer to that question is that investment advisors do, while brokers do not. The recommendations given by brokers have to meet a presumption of suitability. While that is nice, it might not always lead to the best possible investment advice. Investment advisors have to give suitable advice that is ALSO prudent. Being prudent is something that our point and figure charts help us do at Mullooly Asset Management. The charts allow us to find good entry and exit points in the market when we decide to make a move. Investment advisors have that second level of accountability when it comes to investing money for clients.

The final topic coveredMeeting with Your Investment Advisor in this week’s podcast is that brokers are not always called by that same title today. The brokerage community has done a good job of blurring the distinctions between investment advisors and brokers. In the past, brokers were known as customers men, stockbrokers, or account executives which are accurate titles. Today in an effort to confuse investors they are called things like financial consultants, investment counselors, and even financial advisors.

If you don’t understand the difference between brokers and financial advisors you NEED to tune in for this week’s podcast.

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