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How are investment advisors different from stock brokers? |
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Written by TD AMERITRADE Institutional
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Friday, 08 December 2006 |
Some of these key differences follow:
• Investment advisors have a fiduciary duty to act in the best interests of their clients at all times. Brokerage firms generally are not fiduciaries to their customers and therefore may not make decisions that are solely in their customers’ best interests.
• Investment advisors charge clients a fee negotiated in advance and cannot earn any other profits from their clients without the clients’ prior consent. Most investment advisors are paid an asset-based fee, so their interests are aligned with their clients. Brokerage firms’ revenues may increase even if the customers’ assets shrink.
• Investment advisors provide their clients with a Form ADV that describes exactly how the investment advisor does business and obtains the client’s consent to any conflicts of interest that might exist with the investment advisor’s business. Brokerage firms are not required to provide customers with any comparable type of disclosure.
• Investment advisors cannot trade with their clients as principal except in extremely limited circumstances. Brokerage firms often earn significant profits by trading as principal with their customers.
• Investment advisors manage money in the best interests of their clients. They do not engage in business activities like investment banking or underwriting, which brokerage firms do. These other businesses may cause a brokerage firm’s interest or attention to focus on other areas of the firm outside of their retail brokerage business and customers.
Contact Index Gurus for a copy of the full article called
"WHAT YOU NEED TO KNOW ABOUT FINANCIAL ADVICE"
Index Gurus works with private clients through TD AMERITRADE Institutional.
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Last Updated ( Friday, 08 December 2006 )
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