The Roles of Investment Brokers and Advisors Explained

When investing abroad, investors must assess their own financial goals, their tolerance for risk, and the health of the project. To do so, they need knowledgeable professional advisors. When investing in US securities, investors choose between two types of professionals: broker-dealers and registered investment advisors (RIAs). According to Ana Elisa Bezerra, senior director for Europe at LCR Capital Partners, both have their advantages, but their expertise, advice, and responsibilities differ considerably. Broker-dealers are knowledgeable about the investment landscape, but they earn commissions from the projects they recommend—commissions that they need not disclose until after the transaction is completed and that may influence the direction in which they steer investors. Broker-dealers follow a “suitability standard,” which means that their recommendations must be suitable to the client, but not necessarily in the client’s best interest. In contrast, RIAs charge fees independent of their recommendations, usually 1% to 2% of the investment. They are bound by their “fiduciary duty” to the client, in that their recommendations must be in the client’s best interest, not their own. This means that they are less likely to steer investors toward particular projects. Bezerra notes instances in which a broker-dealer may be preferable, but in assessing how a specific investment fits in with an investor’s overall financial health, an RIA can be preferable.

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