Understanding the Difference Between Registered Investment Advisors (RIAs) and Investment Brokers

Chad MeyerWhen choosing an investment professional, there are many different avenues to navigate. Understanding the differences between Registered Investment Advisors (RIAs) and brokers will help you determine the best professional council for your investment needs. A Registered Investment Advisor is defined by the Investment Advisers Act of 1940 as a “person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications.” As a Registered Investment Advisor (RIA), Tufton Capital Management has a fiduciary duty that sets us apart from stockbrokers and other salespeople who charge a commission for executing sell orders submitted by their clients. As a fiduciary, our firm must follow the highest known legal standard, known as the “trust” standard. Doing so requires us by law to place the interests of our clients before our own and fulfill critical fiduciary duties in trust and confidence.

This responsibility varies significantly from that of a broker, who must only meet the “suitability” standard. Such a standard allows the salesperson to put his or her interest above that of the client when making investment decisions. Even if your broker calls himself an “investment advisor,” if the individual works for a brokerage firm, your best interests may come second to the needs of his firm or his own personal gain. Brokers enjoy commissions and legal kickbacks, known as 12b-1 fees, from mutual fund companies. If your broker is not registered with the SEC as an investment advisor, he is not an investment advisor and should be perceived as someone acting in the capacity of a salesperson.

Tufton Capital’s fiduciary duty is reflected in our firm’s fee structure. As an RIA, our company is a fee-only advisor, charging solely on assets under our management. This ensures that the portfolios we construct for our clients are done so strictly with their best interests in mind. We have no incentive to sell one investment product over another, nor is there any benefit to us for performing unnecessary trading in our clients’ accounts. This differs from the brokerage model, where salespeople may face pressures to maximize commissions for their firm through selling high-fee investments and/or executing trades too frequently.

Members of Tufton Capital’s portfolio management team average over thirty years each of investment experience and fiduciary responsibility. These men and women are the trusted advisors for our firm’s clients, and our fiduciary duty to our clients will never be compromised.

The Difference Between Registered Investment Advisors (RIAs), Financial Planners and Stockbrokers

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