RIA vs. Broker-Dealer: What’s the Difference?

For financial professionals considering the next stage of their careers, understanding the distinction between an RIA and broker-dealer is critical. These two frameworks shape how advisors serve clients, how they are compensated, and how much autonomy they truly have over their business. While both RIAs (Registered Investment Advisors) and broker-dealers help individuals manage wealth, the models differ in structure, obligations, and philosophy.

In this article, we break down the differences between RIAs and broker-dealers, including how each is regulated, their duties to clients, and how the two models intersect. If you are a breakaway advisor weighing your options, this guide will help clarify the pros and cons—and why many are choosing the RIA path.

What Is the Difference Between an RIA and a Broker-Dealer?

The fundamental difference between a registered investment advisor (RIA) and a broker-dealer lies in their regulatory oversight and their standard of care to clients. RIAs are fiduciaries, legally bound to act in their clients’ best interests. On the other hand, broker-dealers are held to a suitability standard, which means recommendations must be appropriate for the client, but not necessarily the best possible option.

Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). RIAs typically operate under the Investment Advisers Act of 1940 and are either registered with the SEC or with state securities regulators.

These differences translate to real-world implications for advisors and clients alike, ranging from how investment products are selected to how fees are disclosed and how conflicts of interest are managed.

What Is a Broker-Dealer?

A broker-dealer is a firm or individual that buys and sells securities either on behalf of clients (as a broker) or for its own account (as a dealer). Broker-dealers often operate under large national brands and offer a wide range of financial products, including mutual funds, annuities, and insurance products.

Compensation and product access

Broker-dealers generally earn revenue through commissions, transaction fees, and revenue-sharing arrangements with product sponsors. This can create potential conflicts of interest, especially when advisors are incentivized to sell proprietary or higher-fee products.

Oversight and regulation

Broker-dealers are overseen by FINRA, which imposes regulatory standards related to sales practices, advertising, continuing education, and record-keeping. Broker-dealer representatives must pass licensing exams, such as the Series 7 and Series 63 or 66.

What Is a Registered Investment Advisor (RIA)?

An RIA is a firm or individual that provides investment advice and manages client portfolios for a fee, typically based on a percentage of assets under management (AUM). Unlike broker-dealers, RIAs are fiduciaries, meaning they are legally obligated to prioritize their clients’ best interests above their own.

Independent and transparent

RIAs are often independent and fee-based, allowing them to offer objective advice without being tied to proprietary products or commission-based compensation models. This transparency tends to appeal to high-net-worth clients who want personalized, conflict-free financial guidance.

Regulation and requirements

RIAs are registered with the SEC (if they manage over $100 million in assets) or with state securities authorities. They are governed by the Investment Advisers Act of 1940 and must file Form ADV, which discloses their business practices, fees, and any potential conflicts. In addition, investment adviser representatives (IARs) typically must obtain the Series 65 license (Uniform Investment Adviser Law Examination) or hold another qualifying professional designation (such as CFP^®, CFA^®, or ChFC^®) that satisfies this requirement. These licensing standards help ensure that advisors have the knowledge and competency to provide fiduciary-level advice.

What Are the Standards for Investment Advisors and Broker-Dealers?

The most important distinction between an RIA and a broker-dealer is the standard of care they owe to clients.

Fiduciary duty (RIA)

RIAs are held to a fiduciary standard, which legally requires them to:

• Act in the best interests of their clients at all times
• Avoid conflicts of interest (or fully disclose them)
• Provide advice based on a comprehensive understanding of the client’s financial situation

Suitability standard (broker-dealer)

Broker-dealers are only required to ensure that investment recommendations are suitable for clients. This means that as long as a product fits the client’s general investment profile, it can be recommended, even if there are better or more cost-effective alternatives available.

Does an RIA Need a Broker-Dealer?

In most cases, RIAs do not need a broker-dealer. However, some RIAs may choose to work with a broker-dealer for specific functions, such as:

• Executing securities transactions
• Offering certain investment or insurance products not available through an RIA
• Accessing custody or clearing services

This hybrid model is more common among advisors transitioning from traditional wirehouses, who may still maintain certain legacy client assets under a broker-dealer arrangement. However, many advisors moving to full independence find that modern RIA platforms, like Cresset, offer everything they need without the constraints of a broker-dealer relationship.

What Can an RIA Do?

RIAs offer a broad suite of services tailored to high-net-worth and ultra-high-net-worth clients. These typically include:

Portfolio management

RIAs construct and manage investment portfolios based on a client’s specific goals, risk tolerance, and time horizon. They may use a variety of asset classes, including equities, fixed income, alternatives, and private investments.

Comprehensive wealth planning

In addition to investment management, many RIAs provide holistic wealth planning services, including:

• Tax strategy
• Estate planning
• Philanthropic planning
• Business succession
• Family governance

Objective advice

Because RIAs are not tied to proprietary products or sales quotas, they are free to recommend solutions from a broad universe of investments. This independence is one of the key reasons many advisors choose the RIA path.

Summary

Understanding the differences between RIA and broker-dealer models is essential for financial advisors considering a transition to independence. While both serve valuable roles in the financial services industry, RIAs are distinctly positioned to provide transparent, fiduciary-driven advice that puts clients first.

For breakaway advisors, the RIA model offers greater control, flexibility, and the opportunity to build equity in your own business. It also aligns with the growing demand from clients for comprehensive, conflict-free advice. At Cresset, we support advisors who are ready to break away and thrive as independent fiduciaries. Our platform brings together robust investment capabilities, thoughtful planning resources, and a collaborative culture to support you in serving clients with care and intention