Meyer Wilson

Recovering Losses Caused By Investment Misconduct

Stockbroker vs. Investment Adviser: Do You Really Know the Difference?

Understanding the fundamental differences between a stockbroker and investment adviser is crucial. Each one owes various duties to clients and has different roles. Even the route in which you take to hold an investment adviser or stockbroker liable for losses isn’t the same.

Below is information that will help you recognize the distinction between the two professionals:

Stockbroker

  • By definition, a stockbroker is a “licensed agent who has to pass certain qualifying tests to be certified to offer securities investment advice to investors.” (Businessdictionary.com)
  • Stockbrokers generally counsel clients on what to buy and when. They also execute buy-sell orders for investors.
  • Generally, a stockbroker will need to obtain the permission of a client before making a trade (i.e., most accounts are non-discretionary).
  • A stockbroker is often paid on a per-trade basis, as a commission, although charging fees as a percentage of overall account value is becoming more common.
  • Stockbrokers are regulated by the Financial Industry Regulatory Authority (FINRA), formerly known as the NASD, which the Securities and Exchange Commission (SEC) oversees.
  • Fraud or misconduct claims against stockbrokers are almost always handled in mandatory, binding securities arbitration.

Investment Adviser

  • According to the Investment Advisers Act of 1940, an investment adviser is “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.”
  • Investment advisers provide paid advice to their clients. The fees are usually charged on an hourly basis or as an annual percentage of the assets being managed.
  • Depending on the amount of assets being managed, an investment adviser may be required to register with the SEC or state(s).
  • An investment adviser typically has discretion over client accounts (through a “power of attorney”) and therefore has the authority to buy and sell investments without obtaining approval prior to each transaction.
  • Fraud or misconduct claims against investment advisers are typically handled in court or mandatory arbitration, depending on the terms of the account agreement with the investment advisor.

Our law firm handles both stockbroker misconduct and investment adviser claims. If you have lost money from an investment and are looking for information about recovering your losses, please do not hesitate to contact an experienced investment fraud attorney at our office today.

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