Brokerage Account

A brokerage account is an account through which a stockbroker provides transactional capabilities and investment advice if—and only if—that advice is incidental to their brokerage business. It is important to understand that a brokerage account is very different from an advisory account. Unlike a Registered Investment Advisor (RIA), a stockbroker is not obligated to act in the best interests of their clients. In other words, stockbrokers do not act in a fiduciary role for their clients, and there may be clear conflicts of interest between the stockbroker’s objectives and the objectives or best interests of the client. For example, stockbrokers may have strong financial incentives to sell products that are manufactured or underwritten by their brokerage firm, and those products may not be in the best interests of the client. Rather than fiduciary obligations, stockbrokers are held to something called a suitability obligation. This basically means that the broker must believe that their recommended security is suitable for any investor and for the particular investor to whom it is sold. This is a very different—and much lower—standard than a fiduciary obligation. Also see the glossary definition for advisory account.