Difference Between A Broker and An Advisor

Edited by Diffzy | Updated on: September 07, 2022

       

Difference Between A Broker and An Advisor Difference Between A Broker and An Advisor

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Introduction

The stock market serves the wider part economy of the country. It is referred to collection of exchanges; where buying, selling, and issuances of shares are publicly held. A country might have one or more exchanges comprising its stock market. Such national exchanges, along with several other exchanges operating in a country, forms the stock market.

The stock market allows umpteen buyers and sellers of shares to meet, interact and transact. Although, not everyone is completely aware of the stock market rather those who are aware do need to have access to buy or sell.

We need the help of someone expert in the subject and those who will guide us for all the exchanges we would be performing. And we also need the channel through which we will be performing the exchanges of securities. While all that is part of stock brokerage but in today’s world, we also need someone expert in managing finance who would help us with our money management while investing and other plans.

And those positions of responsibility are filled by the broker and financial advisor. For an outsider, the jobs of a financial advisor and broker might appear the same, but both have very distinguished roles in the financial system, whether it be for individuals or corporations. It should be noted down that SEBI (Securities and Exchange Board of India) is the regulating body for both the broker and advisor. As per the guidelines of SEBI, the advisor cannot provide any brokerage services, so while having the broker is necessary, then having an advisor is of utmost importance too. Hence, we need both of these experts, for all the investment needs one needs to perform.

Broker vs. Advisor 

The type of service both broker and advisor provide makes all the difference, and how they are paid for the service. As above mentioned, both the entities and services they provide are being regulated by SEBI (Securities and Exchange Board of India). There are different regulating bodies for different countries, for the US it’s FINRA (Financial Industrial Regulatory Authority) which only regulates brokers. And financial advisor doesn’t need any legal requirements, but it is regulated by SEC (US. Securities and Exchange Commission). Different country has different ways for broker and advisor to operate. But for most and almost all countries today have legal regulating bodies for both brokers and financial advisors, they could either have the same regulating body or different.

The broker earns the commission on every sale of any type of stock investment, whereas the financial advisor earns on the advice they provide to us on money. There are some overlaps in the similarities section, like financial advisor researching and exchanging securities is the same as a broker, but the motive behind their duties is what kept both jobs distinct.

Broker constantly deals with the exchange of securities and always researches the marketplace for the applicable product of the industries. Financial advisors, on the other hand, research the market through the lens of customers' current financial status, the broker doesn’t have access to such information.

Below we will highlight and discuss more the difference in motives & duties of each field.

Difference Between Broker and Advisor in Tabular form

Table: Broker vs. Advisor 
Parameters
Broker
Advisor
Purpose
The broker is the channel through which the client can exchange securities in the stock market, crypto market, and so on.
The advisor is someone who helps their client – whether individual or corporate – in managing their funds and how certain investments can affect clients’ finance.
Commission
The broker commission varies with the amount involved in the investment. So, if you are trading with a big sum of amount the commission to the broker will be big and vice versa, for any amount of payment involved.
The commission charge varies as per advisors’ that is, it can be paid as hour-fees, commission based on property, tax, estate. etc.
Motive
The motive of the broker is that it acts as a channel through which one can invest and perform an exchange of securities.
The motive of a financial advisor is to manage wealth and try to acquire the goals in a certain time frame. It could be a retirement plan, business start-up plan and so on.
Work
The work a broker can conduct to manage the finance of clients is by investing only in the stock market.
The work advisor conduct is by coming up with the best possible plan for the client and are allowed to invest in any financial aspect it could be an estate, property, piece of land, policy, etc.
Research
Most of the research work is regarding the marketplace, stocks, bonds, and so on. Company’s potential to grow further or which one would cease to exist. Knowing all this will help brokers make favourable choices for clients.
The research of an advisor is vast in the financial subject. They have to conduct research on every part and make plans accordingly. Keeping updated on new data, and choosing and suggesting what would be the best choice for the client.
Investment decision
The broker usually relies on the parent company for recommendations.
Clients have direct access to a financial advisor and their firm. The final decision is made with the coordination of the client and decision-maker.
Fiduciary Status
Broker is free from this system.
Because of the fiduciary system, advisors have to act in the client’s best interest. And provide the best possible way rather than a suitable way with high commission.

What is a Broker? 

In the old days, when computers & internet were hardly usable, having access to the broker was a luxury reserved for the rich. The individual investor had no direct access to the market for trading & investing and had to place their orders through a licensed broker. 

But since there is up-gradation in technology & internet the job of the broker is changed. Almost all people who wish to trade now are free to do so via a well-based discount brokerage. As compared to a classic broker, the charges/commission of an online broker is far less. 

Now, no one has to wait or be on standby to execute their buying & selling orders and can have direct access to the market through an online broker with zero commission. Many brokers still execute orders, even though they have expanded their services to justify charging a higher commission. 

Brokers are mostly leading in the research and understanding of the marketplace and the changes it takes and also different industry fields about products such as stock and bonds. Even the broker assists their clients in financial management, but this assistance only pertains to the buying & selling of securities in the marketplace, since brokers specialize in the marketplace.

When you have a trading account with any of the stockbrokers, then you can perform the execution of any trade. The more the trading value invested, the more will be brokers revenue. The trading account must have all the legal & necessary details provided by their respective regulating bodies. Like in India, the SEBI registration number is valid proof that a certain stockbroker is official. If the broker fails to provide proper service, the client can make a complaint against the broker in the SEBI’s grievance redressal system known as SCORES.  

In recent days, it’s very common to see a broker dual-registered as a financial advisor. They can even be included in part of the sales team in a private company, initial public offering (IPO), or some other issuance. While working in the financial department of a corporate company, the broker may sell some stock ideas to raise the company’s capital. In return, a broker might get some commission, shares or warrants from issuing company.  

To sum up the work of a Broker:

  • Doing complete research in the marketplace both analytically and fundamentally. 
  • Evaluating the client details and providing them with the best possible option. 
  • Provide clients with the best option to invest in, which will fit their budget. 
  • Protecting any confidential details of the client. 
  • Documenting all the buying and selling done on behalf of the client. 

What is an Advisor? 

The advisor is someone who has immense knowledge in the financial field. They work on the fee-based system of providing investment advice given to an individual or corporate client needs and also manage their finances and investment accounts. 

A financial advisor is with the client to assist them with the budget, insurance, tax, estate and balance sheet. As the advisor system works commonly on the fiduciary system, which makes them act and work in the client’s best interest. In a way, this makes them analyse even more because they can’t provide a suitable option if there is a better options present. This system may raise conflicts as the commission on the best options is less. They are incentivized to put the client in the product that has the highest commission rather than giving the best option possible. And all the advisors are not fiduciary so make sure you as a client make proper enquiry of all the services they provide, rather than assuming. 

But instead of the commission, the financial advisor charges the fees for the advisory service they provide. And the fees of the advisor can differ from one to another, some are paid based on assets involved in the deal, hourly fee, property or amount of money given to manage. 

The financial advisor is implied to analyse the angle of the client’s financial affairs and make a plan that will help build up the client’s financial growth and achieve whatever goals the clients have in the given time or specific time. They also look over the industries and potential investments the client could make and what would be the conducive type of investment as per the client’s funds. 

Advisors can also help you invest in stocks and bonds on behalf of clients if they are given authority by the regulating body. But as mentioned above, it has become common to be dual-registered as a broker as well as an advisor. Just like broker advisor is also regulated by SEBI in India, SEC in the US, and so on in other countries. 

The information provided to the advisor by the client is far more detailed than the one provided to a broker of any sort. As the advisor must consider all the facets of the client’s financials. 

To sum up the work of a Financial Advisor:

  • Research every financial aspect of the company, investment, policy, property, etc. 
  • Monitoring accounts and managing the funds of clients in their best interest. 
  • Giving suggestions when changes in needed in managing funds or buying a new property. 
  • Have a list of alternate plans in case of circumstance changes or emergencies. 
  • Meet the financial goals given by the client in a specific time frame. 
  • In being fiduciary system, the advisor must act in the client’s best interest rather than earning a high commission on a suitable product.  

Main Difference Between Broker and Advisor in Points 

  • Broker helps in investing in stocks and bonds, whereas the financial advisor will help in investing in estates, property, and even stocks if the financial advisor has the authority from the regulating body.
  • Research of the broker is specifically on the marketplace and what affects the market value. And the research of the advisor is far more detailed in the overall financial sector.
  • Monitoring of all the accounts and fund transfers of the client is done by the advisor, and documenting of all the buying and selling of stocks is done by the broker.
  • Stockbroker has more freedom of choice compared to an advisor. Since the broker has to work and research one part of the financial sector which is the stock market, and whatever affects the changes in it, the advisor has to look financial in every aspect.
  • Brokers' commission depends on the total amount involved in the investment. If a big amount is invested the commission will also be more. In the case of advisors, the commission charge can differ as per their requirements. One financial advisor could charge for hours or months, others would charge based on property and estate.
  • Advisors are legally abiding to follow the fiduciary system i.e., a financial advisor must act and choose the investment & property plans in the client’s best interest. Brokers are free from such acts.
  • Brokers get paid for all types of exchange whether it is a profiting investment or a losing investment. But the advisor only gets paid to give out a consultation to their clients.
  • If working for the company the salary of a financial advisor is more than a broker.  

Conclusion

Know that the advisors offer more services and they also help with more complex financial situations. The answer depends on the services you want and how much you're willing to pay. If you want to buy or sell a stock, a broker or discount brokerage will make sense. If you have questions about saving for goals and retirement plans, you may want to expand your search to financial advisors who offer a wide range of services.

Brokers and advisors can work with accounts of any size, but with smaller accounts, it becomes difficult to obtain the appropriate amount of diversification, which makes it difficult to meet the fiduciary standard of care requirements. In either case, we as a client need the level of comfort with the commission being paid relative to the services being provided.

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"Difference Between A Broker and An Advisor." Diffzy.com, 2022. Sun. 27 Nov. 2022. <https://www.diffzy.com/article/difference-between-a-broker-and-an-advisor-982>.



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