financial advisers and stock brokers

http://www.consumerismcommentary.com/2007/09/21/financial-advisers-and-stock-brokers-whats-the-difference/

You would think that the roles and responsibilities would be clear and there would be a strong line between individuals who call themselves financial advisers and those who call themselves stock brokers. The obvious answer is that advisers give impartial advice based on the best interest of the client and brokers sell products as a third party.

Advisers are sworn to put their clients’ interests ahead of their own, thanks to the Investment Advisers Act of 1940. This Act defines an adviser as, “Any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.” The Act also precludes brokers from being considered investment advisers.

In that case, what is a broker? The act also provides this definition. A broker is, “Any person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank.” The key word is effecting, which astute readers will realize is not the same word as affecting. Brokers make the trades happen. Today’s brokers are “broker-dealers,” meaning they make the trades happen, and they sell financial products to customers for a fee.