A Bailey Financial Services Explainer
RIA vs. Broker-Dealer: What’s the Difference?
These two models exist for different reasons. Many investors assume they are the same. They are not. The differences show up in standards, compensation, and what the firm is legally built to do.
Simple frame: An RIA is in the business of advice. A Broker-Dealer is in the business of selling securities and financial products. That one difference drives everything else.
Registered Investment Adviser (RIA)
- Purpose: advice + portfolio management
- Standard: fiduciary (client-first)
- Compensation: primarily fee-based
- Regulators: SEC or state securities regulators
- Core question: “Is this in the client’s best interest?”
Broker-Dealer
- Purpose: execute trades + distribute products
- Standard: suitability / best interest (context-dependent)
- Compensation: commissions and transaction-based revenue may apply
- Regulators: FINRA (and SEC oversight of broker-dealers)
- Core question: “Is this suitable for this type of investor?”
Suitability means: “This product is acceptable for this general investor profile.”
Fiduciary means: “This recommendation must be made with the client’s best interest first — even if it reduces the advisor’s compensation.”
Why Investors Get Confused
Many firms operate in both worlds. The same person may provide advice in an RIA capacity, and then implement a recommendation through a broker-dealer platform. In plain English: the advisor may wear “two hats.” The important question is which hat is being worn when recommendations are made and how the advisor is paid.
A Practical Checklist
- Are you receiving advice under a fiduciary obligation — in writing?
- How is the advisor compensated: fee, commission, or both?
- Are there proprietary products, sales contests, or quotas?
- What does the firm disclose in Form ADV and Form CRS?
- Can you clearly see all costs and potential conflicts?
Professional note: This page is educational and not a recommendation of any specific security or strategy.