Only certain licensed professionals are allowed to place security trades for customers or offer paid investment advice under U.S. securities law. Stockbrokers and financial advisors are two such professionals, although they tend to service different kinds of clients and focus on varying outcomes.
It is not impossible for a professional to be both a stockbroker and a financial advisor at the same time, or for a professional to fluctuate between one designation and the other. The hallmark of stockbrokers and advisors alike is the Series 7 license, which allows an investment professional to offer a full line of general securities to clients. Everything else depends on the kinds of relationships built with their customers.
How Stockbrokers and Financial Advisors Differ
One critical legal difference between a stockbroker and a fully registered advisor hinges on the word "fiduciary." A fiduciary is a professional who manages money for another, called the "beneficiary." U.S. law places a positive obligation on any fiduciary to put the interest of its beneficiary first.
Under the Investment Advisers Act of 1940, all registered investment advisors (which many financial advisors are) carry a fiduciary obligation to their clients. This is not so with stockbrokers. Instead, the non-fiduciary stockbroker must only follow the standard of "suitability," which does not require the client's interests be placed first; stockbrokers need only provide suitable advice given the client's resources.
There is one exception to note: stockbrokers owe fiduciary duties to their broker-dealers. Registered investment advisors do not have a broker-dealer. It is important to note that some financial advisors are not registered investment advisors; they are registered representatives who work for a broker-dealer. These financial advisors are bound by the same suitability standard as stockbrokers, and the only difference between the two might be the securities licenses they hold.
The other major difference is the kind of service provided to customers. Financial advisors normally present themselves as full-service money experts, meaning they offer tax advice, mortgage help, build budgets, and even sell insurance. They may make their money through fees, commissions or both. Conversely, stockbrokers are much more transactional. They still have clients and can build long-term relationships, but the emphasis is on securities products and not other aspects of financial life.
What Type of Education and Experience Is Needed?
Almost anyone can become a stockbroker or financial advisor. It helps to have an undergraduate degree, preferably in finance, economics or some type of related field. It can also be a big plus to have prior experience working with investments or in sales, although it is not a prerequisite.
The only real requirement to either career is passing the securities license exams administered by the Financial Industry Regulatory Authority (FINRA). There is one catch; FINRA requires you to have a sponsoring entity before you may sit for most of its exams. This means an aspiring advisor or broker needs to find a firm to sponsor them.
Common Securities Licenses Include:
- The Series 6, which grants the ability to deal in mutual funds
- The Series 22, which grants the ability to deal with direct participation programs
- The Series 7, which is the most common and covers a wide range of securities
- The Series 65, required by most states for those who wish to act as investment advisors
- The Series 63, required by some states for official registered representative status
- The Series 66, which covers the 63 and 65 exams without repeating Series 7 material
FINRA exams are not free. Most cost between $100 and $305 per attempt, but they are not overly difficult to pass. FINRA creates its own study materials, and most individuals only have to study for a few months to pass the Series 7, which many consider to be the most difficult test.
It is also imperative for advisors and brokers to develop effective communication and interpersonal skills. Success and failure depend on the ability to market, find clients and then explain complex financial topics in a digestible manner.
How Is the Work/Life Balance?
In the abstract, stockbrokers and financial advisors have very flexible schedules and enjoy outstanding work/life balance. A large number work independently and make their own schedules. Even those who work for firms and have office hours can work their way to relative self-determination.
However, watch out for a "grass is always greener" mentality. The first years as a broker or advisor are often filled with low pay and long hours until a book of business is established. Many in the field do not survive this introductory period, and those who do often come in on weekends or work late at night to accommodate client schedules.
What Is the Outlook for the Industry?
Even though the financial industry is expected to grow over the next decade, the nature of investment advisory careers is changing. The market is trending away from classic, fee-based advisory services and moving towards remote, even automated, and cheaper alternatives. Robo-advisors and online brokers make it easier than ever to receive investment advice. More options are good for consumers, but they place a squeeze on brokers and advisors.
Successful stockbrokers and financial advisors in the twenty-first century need to have plans to deal with changing service dynamics, whether by embracing new platforms or creating a clear value-added service differentiation.
Choosing Between Being a Stockbroker or Financial Advisor
There is a great deal of crossover between these two professions. A successful stockbroker could likely be a successful financial advisor and vice versa, even if the target customer base is a little different.
Those who enjoy comprehensive, big-picture strategies likely enjoy building full-service financial plans more than simply selling securities. Conversely, stockbroking is a better fit for those who prefer focusing narrowly on market products.
Both jobs are demanding and require a lot of self-marketing, initiative and strong communication skills. The best decision is likely made on the basis of comfort, with an employer rather than the specific title attached to the work.