Because these advisors are independent, they are not tied to any particular family of funds or investment products.
Registered Investment Advisers (RIAs) usually provide their services for an annual fee calculated as a percentage of assets under management. They are required to act as "fiduciaries".
As fiduciaries, RIAs are held to the highest standard of care. This means they must put their clients' interests first. In other words, they must by law disclose all expenses and potential conflicts of interest.
RIAs are registered with either the Securities and Exchange Commission or state securities regulators.
A broker’s primary loyalty is to their employer, the firm that pays them a salary each week along with various perks. An RIA’s primary loyalty is to their client, the person that pays them directly on an advisory fee basis.
When brokers and insurance agents give investment advice, they are obligated only to make sure that what they are recommending is "suitable" for the investor involved. This suitability standard represents a lower standard than the fiduciary standard, which RIAs are required to use by law.
Individual investors—even highly sophisticated ones—find it difficult to distinguish between and among these three groups of “advisors”.
Critics say the current framework means brokers and insurance agents can recommend investments that enrich themselves and their companies at their clients' expense. These may include, for example, mutual funds or fixed-income products that result in higher commissions to the person selling them or hidden fees such as so-called 12(b)(1) marketing fees.
The Department of Labor has recently issued new regulations which aim to clarify the various roles and responsibilities of each of these three groups. The new regulations are to take effect in January 2018.