When people think about a financial advisor, they often picture an experienced professional who is trusted to act in clients’ best interest when designing financial strategies or recommending investments. However, that may not always be the reality.
A key decision when engaging a financial advisor is based on understanding which legal structure they operate under. There are two main types of wealth management firms: Registered Investment Advisers (RIAs) and broker-dealers. While both types of firms help individuals manage their wealth, depending on the service model you choose they are governed by fundamentally different rules, compensation models, and duties to their clients—which can have a direct impact on the advice you receive. In some instances, firms can have a dual role, and the governing rules depend on what type of account a client is using.
This article is designed to help you understand the differences so you can make an informed decision about which type of advisor is right for you. Cerity Partners is an independent RIA. That distinction might matter more than you think.
The legal duty to the client—who comes first?
One way to understand the difference between an RIA and a broker-dealer is to ask: When your advisor makes an investment recommendation, are they legally required to put your interests first—above theirs or their firm’s?
At an RIA, the answer is yes. RIAs are held to a fiduciary standard, which is a legal obligation to act in clients’ best interest. They must avoid any conflict of interest or fully disclose them. At a broker-dealer, the standard is weaker. Broker-dealers operate under a suitability standard, which means a recommendation simply needs to be “appropriate” for you. As long as products fit a client’s profile, a broker-dealer can recommend them. Depending upon the structure of a broker-dealer, their advisors may have a fiduciary duty for certain types of assets and accounts.
Compensation model: How your advisor is paid matters
RIAs are fee-only (a set percentage of the assets managed on your behalf, a flat annual fee, or an hourly rate) or fee-based. RIAs are paid by their clients, and all conflicts are clearly disclosed.
An advisor at a broker-dealer can be compensated in various ways, including:
- Commission from selling one of their firm’s products
- Commissions when a transaction is made
- Compensation earned on client lending
These points aren’t necessarily signs of bad intentions. No matter the structure, there will be conflicts of interest present in some capacity. Understanding the nature of those conflicts can help prospective clients decide which advisor they’d like to work with.
Comparing RIAs and broker-dealers: A quick reference
| RIA | Broker-Dealer | |
|---|---|---|
| Legal duty to clients | Fiduciary; must act in clients’ best interest | Suitability; recommendations must be appropriate, but falls short of full fiduciary obligation |
| How they’re paid | Fees (% of assets, flat fee, or hourly) paid by clients | Fees, commissions on proprietary products, spreads on fixed-income trades, compensation on outstanding loans |
| Regulatory oversight | SEC and state securities regulators | FINRA, SEC, and state regulators |
| Custody of assets | Most use a third-party custodian | Can custody client assets |
| Institutional capabilities | Act under their investment adviser registration and cannot underwrite securities, provide lending, or offer banking services | Can offer investment banking, lending, fixed-income market-making, and proprietary investment products |
| Suite of services | Vary depending on the size of the RIA, but may offer comprehensive support across tax advice, tax preparation, estate and legacy planning guidance, investment management, insurance, philanthropic guidance, business planning, and more | Vary depending on the broker-dealer. May be limited to investment management, services related to investments, and banking services, or offer more comprehensive services |
Access to private markets as a potential differentiator
Depending on the capabilities of an individual firm, one area where the distinction can become meaningful is in private markets.
When investing in private equity, private debt, venture capital, real estate, and infrastructure, choosing the wrong manager can matter far more than in public markets. In 2025, the difference in returns between the top 25% private equity funds and the bottom 25% was approximately 12.9 percentage points—compared to a dispersion of approximately 1.5 percentage points between the top and bottom public equity funds.1
At Cerity Partners, our private markets team can draw upon the full landscape and bring clients what we believe are the most compelling opportunities after vetting through qualitative, quantitative, and operational due diligence. We aim to negotiate lower fees and minimums, passing these savings along to our clients.
Questions to ask a financial advisor when conducting due diligence
| Question | What to Listen For |
|---|---|
| Are you a fiduciary? Do you have conflicts of interest? | Acting in your best interest at all times and disclosing any potential conflicts of interest. If the advisor is a Certified Financial Planner (CFP)®, their Code of Ethics and Standards of Conduct requires a fiduciary standard. |
| How are you compensated? | Fees, commissions, referral fees, incentives tied to specific products. Ask for a complete itemized description of compensation related to your account. |
| Where are client assets held? | A third-party custodian or at the advisor’s firm |
| What is your investment philosophy? | Open architecture, products and strategies selected according to clients’ goals |
The Cerity Partners approach
Cerity Partners LLC is a Registered Investment Adviser and a fiduciary who acts in our clients’ best interest. We encourage every prospective client to conduct thorough due diligence and to hold any advisor to the highest standard of transparency and accountability.
If you have any questions, reach out to your Cerity Partners advisor or request an introduction today.
- Nasdaq, “Asset Manager Selection Guide: Performance Dispersion Analysis.” Published March 3, 2026. https://www.nasdaq.com/articles/analytics/asset-manager-selection-guide ↩︎
Cerity Partners affiliates include CP Client Solutions, an insurance-focused limited purpose broker-dealer that is different from a traditional securities broker dealer. CP Client Solutions was created to offer our clients access to variable insurance and annuity products.
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