Registered Investment Advisor vs. Commission-Based Broker

Registered Investment Advisor vs. Commission-Based Broker
Written By
Carl E. Sera, CMT
Published On
June 28, 2023

Which is right for you: a registered investment advisor or a commission-based broker? Let’s find out.

What Is a Registered Investment Advisor?

A registered investment advisor, or an RIA, is a financial firm that helps manage investment portfolios and advises clients on securities investments. RIAs register through the US Securities and Exchange Commission or state security administrators. RIAs often earn income through managerial fees, which get calculated as a specific percentage of a client’s AUM, or assets under management, by the RIA.

Common Investment Advisor Misconceptions

To know whether a registered investment advisor is right for investors, reviewing common myths surrounding them is essential. Firstly, many people assume that any investments through an investment advisor end up in high-risk stocks. Registering investment advisors ensure clients have a stable, short-term saving account for emergencies or significant purchases. Advisors help create a balanced, diversified portfolio for clients to ensure the investment strategy is in the investor’s favor.

Another misconception regarding registered investment advisors is that they treat their clients less seriously. However, registered investment advisors help guide clients through the investment process and patiently explain each detail to the client’s understanding. They must treat clients respectfully, as investors rely on advisors to reach their goals.

What Is a Commission-Based Broker?

A commission-based broker is a brokerage company employee who receives payment through the number of trades they perform. The difference between registered investment advisors and commission-based brokers is that their commission structure often encourages unethical behaviors, including dishonesty, that won’t benefit their customers. Brokers often earn a percentage of client asset trades; the more their client trades, the more income they receive.

Potential Unethical Practices

Commission brokers earn money through business volumes. If clients don’t perform trades, they, in turn, receive no income. As such, commission brokers can get involved in bucketing, where they purchase or sell securities at more favorable prices than the client expected and don’t pass the value onto the client, pocketing the profit. Furthermore, they can perform churning, where a broker generates commissions through excess trading in a customer’s account.

Sera Capital helps its clients with deciding their financial futures and diversifying portfolios for those with highly appreciated assets. Our professional registered investment advisors give investors the tools to create personalized wealth management, defer capital gains tax, and advise which financial avenues benefit their goals. If you have any questions about our advisors and their services, schedule a free 30-minute phone call today.

Carl E. Sera, CMT

Carl E. Sera, CMT

Managing Principal, Sera Capital
Carl Sera is a Chartered Market Technician and the Managing Principal at Sera Capital Management, LLC. He has over 14 years of experience in the financial services industry with a focus on investment management.

Secure Your Free 30-min
Consultation Today

Schedule Consultation