Broker-Dealer vs. Registered Investment Advisor

Understanding What Will Work Best for Your Financial Practice

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Traditionally, if you planned to buy and sell investments and you were going to earn a commission, you needed to be affiliated with a broker-dealer who could facilitate the transaction and pay out the commission.

After experiencing higher consumer demand for advisory services, advisors started transitioning from buying and selling for a commission to charging planning fees for their advice and portfolio management.

Eventually, this turned into the full-service RIA model that we see implemented by financial advisors today. RIAs offer more flexibility and allow customization of their services and client relationships, but broker-dealers provide firms with a structure and a network of solutions.

When considering an RIA vs. broker-dealer, there is a legacy part of the business. Maybe they had built it up over decades with transactional registered products, like commissionable variable annuities or alternative investments. If they did not maintain that relationship, they would lose the corresponding revenue. 

This could be hundreds of thousands of dollars in revenue they would have to walk away from if they left their broker-dealer. This handcuffs them to the broker-dealer. They still must service those clients, even though the future of the business is advisory. 

When looking at an RIA vs. broker-dealer, advisors often choose to maintain their relationship with their broker-dealer because they haven’t been made aware of the scale and scope of the product offerings in today’s market.

“Five, six, seven years ago, there were hardly any alternative investments or insurance products offered through the RIA that were easily accessible. So, a lot of advisors got in the comfort zone of what they’ve always done: utilize commissionable-based products through their broker-dealer. But there has been a huge evolution of product design. Almost all the products that are available at a broker-dealer are now also available through an RIA. The only difference is instead of getting a commission to sell them, the advisor would charge an advisory fee to offer those products.”

-Dave Alison, CFP®, EA, BPC, Owner of Alison Wealth Management

Another reason advisors choose an RIA vs. broker-dealer is because they feel like they are just another cog in the machine. Some of these broker-dealers are massive, with tens of thousands of advisors. This often leaves them feeling lost in the shuffle.

Download the FREE eBook, Broker-Dealer vs. Registered Investment Advisor, to learn more!