What are the differences between Investment Advisors, Brokers, and Mutual Fund Managers?


What is a “Registered Investment Advisor” (RIA) and how do they differ from brokers (also called “Registered Representatives,” “Account Executives,” “Financial Advisors” or “Wealth Managers”)?

A Registered Investment Advisor (RIA) is subject to the Investment Advisers Act of 1940 and is a fiduciary.  A fiduciary is someone that manages money for the benefit of another, often known as a beneficiary.  A fiduciary is held to the highest standard of law, the “trust” standard. This requires the advisor to place the interests of its clients ahead of its own.  Under the fiduciary standard, an advisor must provide its “best advice” to a client.  

A broker falls under the non-fiduciary standard and need only provide “suitable advice” to its clients even if the broker knows that the advice is not the best advice.  Furthermore, the broker has contractual agreements with the broker-dealer which may place the interests of the broker-dealer ahead of the broker’s own clients.   


Why would I want to work with Howe & Rusling when there are such a variety of mutual funds available to me as an investor?

While mutual funds and Registered Investment Advisors (RIA) both go about constructing a diversified portfolio of securities and each receives a fee based upon a percentage of the assets they manage, there are a few significant differences between how each goes about providing a solution for their clients including:

  • Mutual funds cater to the needs of an incredibly diverse pool of investors with a variety of investment objectives, time horizons and even risk tolerances.  Based upon such a diverse pool of investors, it is inevitable that some of these interests may from time to time, be in conflict with each other.  A privately managed account through Howe & Rusling is customized to each unique individual’s goals and time horizon.  The portfolio is aligned around a clearly defined risk/reward profile for each client.    
  • Because mutual funds cater to such a large and diverse client base, they don’t often take into consideration the tax consequences associated with portfolio turnover.  By contrast, a Howe & Rusling Portfolio Manager is acutely aware of each client’s tax situation and can seek to control how gains/losses are realized.  By being able to employ these tax-related strategies, a privately managed account is focusing on the best possible after tax rate of return. 

  • Outside of the required regulatory mailings, it’s difficult for individual investors to understand and even know what they own in their mutual funds because detailed information on holdings is not typically available.  Howe & Rusling manages a portfolio of individual stocks/bonds and is available for viewing whenever the client wishes to review their individual holdings.  This level of transparency is important in that it helps define risk and each client knows exactly what they own.

  • Mutual funds are typically larger companies with many layers between you as an investor and the people managing your money.   It is very unlikely that a mutual fund client would be able to call and speak directly with the manager about recent activity or questions on the economy.  By having a trusting relationship with their Portfolio Manager, clients of Howe & Rusling are able to speak directly with the person responsible for the management of their account.  We offer face to face meetings, frequent contact and a much deeper relationship than what’s available through a mutual fund.