When considering hiring a financial advisor, you’ll likely encounter different types of firms offering wealth advice and investment management services. The three main types with wealth management services are registered investment advisors (RIAs), wirehouses, and broker-dealers (or independent brokerage firms).
In this article, we’ll explain the general differences between these three classes of firms to help you choose which one might be right for you.
Differences between firms
- Registered investment advisor (RIA): As independent fiduciaries, RIAs are legally required to act in the best interests of their clients, unlike wirehouses and independent broker-dealers. They typically charge fees based on a percentage of their client’s assets under management (AUM) or a flat fee. A wide range of financial products and services might be available through an RIA, often without the pressure to sell its own products such as mutual funds, ETFs or annuities. RIAs don’t hold your assets; rather, they manage your investments through an account held at a broker-dealer (also referred to as a custodian). Depending on the size of the firm, RIAs are regulated either by the Securities and Exchange Commission (SEC) or state regulators.1
| Fiduciary | Fees | Main Services | Regulation | |
| Registered Investment Advisor | Yes, RIAs must always act in this capacity | Percentage of AUM or flat fee with possible additional fees for in-house or third-party services | Offering financial consultation and advice to clients, potentially including investment management, tax preparation and other services | SEC or state regulators |
| Wirehouse | Possibly, wirehouse advisors may act in this capacity, though not always. Ask for a written company policy | Percentage of AUM or flat fee with possible additional fees for third-party services and brokerage services, and possible other fees such as investment expense ratios, bank fees, interest costs | Offering various products and services to clients, typically proprietary | FINRA and SEC, possibly state agencies and self-regulatory agencies |
| Independent Broker-Dealer | No, they’re not required to be a fiduciary | Percentage of AUM, flat fee, or transaction fees with possible additional fees for third-party services and brokerage services, and possible other fees such as hourly consulting and investment products | Buying and selling investments for clients, possibly offering products and services that are proprietary or third-party | FINRA and SEC, possibly state agencies and self-regulatory agencies |
- Wirehouse: Typically large, full-service broker-dealers affiliated with major financial institutions, like banks, wirehouses operate through local branches or offices across the country. The term wirehouse came from their original use of telephone or telegraph “wires” for communicating market information among branches. Wirehouses are not always fiduciaries. They might offer fee-based accounts, or a flat fee, or both for their wealth management services. Advisors at wirehouses are usually employees of the financial institution and could have less independence in choosing products and services for their clients. They often offer proprietary products, such as alternative investments or annuities, and may receive commissions for selling them over other investment options. A wirehouse can use outside custodians or they could offer to custody your assets in-house. Wirehouses are regulated by the Financial Industry Regulatory Authority (FINRA) and the SEC.2
- Broker-dealer: Independent broker-dealers are not fiduciaries. They can offer a broad range of investment products and services from inside and outside sources but might not have the same level of corporate oversight as a wirehouse, especially if they’re a smaller firm. They are generally “brokering” trade orders for clients and “dealing” trades for their own account, which can help make more securities available to their clients. Broker-dealers earn fees for their buys and sells of securities. Large broker-dealers often function as the custodian of assets for RIAs, wirehouses, and investment advisors, providing self-trading investment options, and settle trades. For wealth management services, they’re likely to charge fees based on AUM or a flat fee and possibly other fees for third-party services. Because they may earn commissions on the products they sell, it can sometimes lead to conflicts of interest. They are regulated by FINRA and the SEC.1
Considering firms’ differences
Now that you have information about the main distinctions between three types of firms, consider your personal situation and preferences. It can be tempting to simply make a choice based on fees but consider other factors that align with your values and goals.
Do you want to work with a fiduciary RIA that is legally required to act in your best interest? Or are you comfortable with a wirehouse or broker-dealer that will likely be held to a suitability standard, meaning it must recommend products that are suitable for you but not necessarily the best option available?
Does it matter to you whether you pay fees based on a percentage of AUM or a flat fee? Are you okay with your advisor earning commissions on the products they sell, which can sometimes lead to conflicts of interest?
Do you prefer comprehensive financial planning and personalized advice? For instance, Mercer Advisors offers solutions for financial planning, investment management, tax planning and preparation, insurance solutions, and estate planning. Most RIAs or broker-dealers may not offer all the services you want from one team or might not be willing to collaborate with your outside professional resources.
You might get a referral by someone you know who works with a particular firm or advisor. If so, you should still do your due diligence to determine if they’re a good fit for you.
Here are five questions you could ask potential advisors during your research that may help with your decision:
- Are you a fiduciary?
- How are you compensated? And do you receive any payments for investments that are placed in my financial accounts?
- Do you offer proprietary products?
- What services do you provide?
- How often will we communicate?
Choosing a firm
In simple terms, RIAs are known for their fiduciary duty and independence, wirehouses for their affiliation with large financial institutions and proprietary products, and broker-dealers for their flexibility. However, there are many other important factors to consider for your personal circumstances. The relationship between advisor and client is critical for whether you can feel confidence, trust, and comfort with how you’re guided on financial matters.
You can usually find documents that cover services, fees, conflicts of interest, disciplinary actions, and more on companies’ websites. If not, request the information which can be helpful when researching advisors to hire.
If you want to learn more about Mercer Advisors, you can view our SEC firm summary, Form ADV 2A brochure, and Form CRS. When you’re ready to connect with an RIA that has been trusted for 40 years to help families amplify and simplify their lives, let’s talk.
1. “Broker-Dealers vs. RIAs: What’s the Difference?” Investopedia, Sept. 12, 2024.
2. “What is a wirehouse?” InvestmentNews, Nov. 23, 2023.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning document preparation and other legal advice is provided through select third parties unaffiliated to Mercer Advisors. Tax preparation and tax filing are a separate fee from our investment management and planning services. Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc. MAIS provides individual life, disability, long term care coverage, and property and casualty coverage through various insurance companies. For Mercer Global Advisors clients who wish to purchase insurance products, MAIS has entered into a non-exclusive referral agreement with Strategic Partner(s), where the Strategic Partner will provide necessary services relative to the marketing, placement, and servicing of the insurance products, including without limitation preparing and presenting illustrations, supporting the underwriting process, assisting with the completion and execution of applications, delivering policies, and servicing in-force business. MAIS and the Strategic Partner will be listed as either “agents” or “co-agents” on the policies. While Mercer Global Advisors does not receive a referral fee, Strategic Partner receives a percentage of the commission revenue. MAIS and Strategic Partner do have a revenue sharing agreement.
