The Difference Between Brokerage and Advisory

In a Brokerage account, your financial professional generally earns compensation when you make a trade, such as buying a mutual fund or selling an ETF. This is sometimes referred to as a transaction-based relationship. In this type of account your financial professional must make suitable investment recommendations based on your investment objectives, risk profile, and a number of other factors, however, there is no fiduciary standard. Advice is typically given at the time of trade and a markup or commission is charged for each transaction. All trades must be approved by the client in advance.  

In an Advisory account your financial professional is a fiduciary, which means legally bound to act in your best interest when providing investment advice. In an advisory relationship, clients pay a fee based on a percentage of the assets under management. This is often called a fee-based relationship. Advice and monitoring occur on an ongoing basis and trading costs are included in the overall fee. In this type of account the Advisor typically has discretionary authority to make timely transactions on behalf of the client without prior approval.  

If you are someone with a “buy and hold” investment strategy and have a limited need for monitoring and advice, then a Brokerage account may be a good fit for you. However, if you’d like ongoing advice and monitoring provided by an Advisor acting in your best interest, then an Advisory account may be a better choice.