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 (BDs), and both help manage clients’ wealth. Depending on which you choose, they are governed by different rules and compensation models. Firms can also have a dual role, and the governing rules depend on the financial relationship with the client.
This article is designed to help you understand the differences and similarities so you can make an informed decision about which type of advisor is right for you. Cerity Partners is an independent RIA, and we think that distinction matters.
The legal duty to the client
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?
RIAs are held to a fiduciary standard, which is a legal obligation to act in clients’ best interest. Broker-dealers operate under Regulation Best Interest. Both RIAs and BDs must disclose conflicts of interest. 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 conflicts are disclosed.
Broker-dealer advisors 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
Both RIA and BD advisors recommend strategies from the menu of products their firm makes available—and BDs’ menu can include proprietary products.
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 | Regulation Best Interest; recommendations must be in the client’s best interest |
| 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 |
| Product menu | Can evaluate and source third-party managers and strategies across platforms | Can offer proprietary products, in addition to sourcing firm-approved strategies and platforms |
| 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 | Acting solely under their investment adviser registration, RIAs 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 that 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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