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:
- 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.
- 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
- 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
- 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.