Securities & Investment Disputes
Investment Adviser vs. Broker: Different Duties, Different Claims
Draft for attorney review
Short answer
They are different professions under different statutes. An investment adviser registers under the Investment Advisers Act or with the Texas State Securities Board, is paid a fee for advice and owes every client a fiduciary duty of care and loyalty that cannot be waived. A broker registers under the Securities Exchange Act, is paid by commission on transactions and owes a retail customer a best-interest duty at the time of each recommendation under Regulation Best Interest, with no general duty to monitor. Claims against brokers go to FINRA arbitration; claims against advisers go to court or private arbitration. Many firms are both, and the account documents say which role applied.
Why the label decides the case
The person who handled your money may have called herself a financial advisor, wealth manager or planner. The law does not use those words. It asks whether she was acting as an investment adviser or as a broker-dealer representative for the account and the recommendation in question, and the answer changes the duty she owed, the law you sue under and the room you sue in. The first hour of any investor case is spent on that question.
The two regimes side by side
| Investment adviser | Broker-dealer | |
|---|---|---|
| Statute | Investment Advisers Act of 1940, 15 U.S.C. § 80b-1 and following; registration under § 203 with the SEC, or with the state for smaller advisers | Securities Exchange Act of 1934; registration under § 15(a), 15 U.S.C. § 78o, and FINRA membership |
| Business | Advice about securities for compensation, often with discretion to trade | Effecting transactions in securities for customers |
| Paid by | Fees: a percentage of assets, a flat or hourly fee, a performance fee | Commissions, markups, sales loads and trailing payments on each transaction |
| Standard of conduct | Fiduciary duty of care and loyalty under § 206, described in the SEC's 2019 interpretation; applies to the whole relationship and may not be waived | Regulation Best Interest for recommendations to retail customers, judged at the time of each recommendation; FINRA suitability for other customers |
| Ongoing duty | Advice and monitoring over the course of the relationship, at the frequency agreed | None unless the broker agreed to monitor |
| Disclosure documents | Form ADV Part 2 brochure (fees, conflicts, discipline) under rule 204-3; Form CRS under rule 204-5 | Form CRS; Regulation Best Interest disclosure of capacity, fees and conflicts |
| Where claims go | Court, or the private arbitration forum named in the advisory agreement | FINRA arbitration under the account agreement or at the customer's election |
| Public record | Investment Adviser Public Disclosure (IAPD) | FINRA BrokerCheck |
How to tell which one you had
- Read Form CRS. Since 2020 both advisers and brokers must give retail investors a relationship summary that says in plain words whether the firm offers brokerage services, advisory services or both, how it is paid and what conflicts it has. The firm's version is on its website.
- Look at how you paid. A quarterly fee computed on your account value points to an advisory account. A commission or sales charge on each purchase points to a brokerage account. Some accounts charge a "wrap fee" that covers both advice and trading; those are advisory.
- Read the account agreement. An investment advisory agreement grants discretion or agrees to provide advice for a fee. A brokerage account agreement opens an account at a broker-dealer and almost always contains a FINRA arbitration clause.
- Check the regulator's database. BrokerCheck lists registered representatives and their firms; IAPD lists advisers and their Form ADV filings. Many individuals appear in both.
What each duty requires
The adviser's fiduciary duty, as the SEC's 2019 interpretation describes it, has a duty of care (advice in the client's best interest based on a reasonable understanding of the client's objectives, best execution when the adviser selects brokers, and advice and monitoring through the relationship) and a duty of loyalty (eliminate conflicts or make full and fair disclosure so the client can give informed consent). Section 206 of the Advisers Act also bars the adviser from acting as principal in a client's trade without written disclosure and consent beforehand. The parties can agree on the scope of the services, but a clause saying the adviser is not a fiduciary is ineffective. The guide on whether an advisor breached a fiduciary duty applies that standard to facts.
The broker's duty under Regulation Best Interest is real but narrower. When a broker recommends a securities transaction or strategy to a retail customer, the broker must act in that customer's best interest at the time the recommendation is made and may not place the firm's interest ahead of the customer's, through four component obligations: disclosure of capacity, fees and conflicts; care in understanding the product and matching it to the customer's profile, including a series of transactions that is not excessive; conflict-of-interest policies at the firm; and compliance policies. Once the recommendation is made and executed, the broker has no duty to watch the position unless the firm agreed to. The guide on unsuitable investments and churning covers the claims that follow from that duty.
Texas law on top of federal law
Texas registers investment advisers and their representatives, and dealers and agents, under chapter 4004 of the Government Code, and the Texas Securities Act's civil liability for sales by misstatement applies to both. Texas common law treats an adviser with discretion or an agency relationship as a fiduciary. A broker in a nondiscretionary account is generally not a fiduciary under Texas law unless a relationship of trust and confidence existed before and apart from the transactions, which is a fact question. That distinction tracks the federal one and is why the same facts produce a fiduciary-duty claim against an adviser and a negligence or Texas Securities Act claim against a broker.
Dual registrants
Most large firms and many individuals are registered as both, and an investor can hold an advisory account and a brokerage account at the same firm with the same person. The duty depends on the capacity in which the recommendation was made. Regulation Best Interest requires the broker to disclose the capacity, and the SEC has said a dually registered person must be clear about which hat is on. The classic dispute is the rollover: a broker who recommends moving a retirement account into a fee-based advisory account has made a recommendation subject to Regulation Best Interest, and once the account is advisory, the fiduciary duty governs everything after. Account statements, the Form CRS and the agreement for each account settle which rules applied to which decision.
Example
Suppose a Garland couple works for 15 years with one representative at a firm registered as both broker-dealer and investment adviser. Their joint account is a brokerage account paying commissions; their IRAs are advisory accounts paying one percent a year. The representative recommends a large position in a non-traded REIT in the joint account and the same REIT in the IRAs. For the joint account the claim is under Regulation Best Interest and FINRA rules: was the recommendation in their best interest at the time, given cost and liquidity, and did the firm supervise? For the IRAs the claim is breach of fiduciary duty: did the adviser disclose the sponsor's payments to the firm, and did monitoring ever happen? Same product, same representative, two legal theories, and under the account agreements the brokerage claim goes to FINRA while the advisory claim may go to court. A litigator decides whether to bring them together by consent or separately.
Where the claim is heard
A customer's claim against a FINRA member firm or its registered representative goes to FINRA arbitration if the agreement requires it or the customer asks. A claim against a stand-alone investment adviser is not within FINRA's rules; it goes to a Texas district court or federal court, or to the private arbitration forum, often AAA or JAMS, named in the advisory agreement. The guide on FINRA arbitration versus court compares the two.
When to involve a litigator
Before you decide you have no claim because "he was just a broker," and before you demand arbitration against someone whose agreement sends you to court. A litigator reads the Form CRS, the agreements and the statements and tells you which duty applied to which decision, and which forum will hear it. Tina Wysk represents investors, advisers and firms in securities and investment disputes in Dallas state and federal courts and in arbitration.
Questions on this topic
How do I know if my advisor is a broker or an investment adviser?
Read the firm's Form CRS, which every broker and adviser must give retail investors and post on its website; it states whether the firm provides brokerage services, advisory services or both and how it is paid. Then check how you paid: a percentage-of-assets fee means an advisory account, a commission per trade means a brokerage account. FINRA BrokerCheck and the SEC's Investment Adviser Public Disclosure database show the registrations of the firm and the individual.
Is a broker a fiduciary?
Not under federal law. A broker recommending to a retail customer must meet Regulation Best Interest, which requires acting in the customer's best interest at the time of the recommendation without placing the firm's interest first, but it is a transaction-based standard with no general duty to monitor. Texas law treats a broker as a fiduciary only in special circumstances, such as a discretionary account or a pre-existing relationship of trust. An investment adviser, by contrast, is a fiduciary for the whole relationship.
What is Form CRS?
The customer or client relationship summary, Form ADV Part 3 for advisers, that SEC-registered investment advisers must deliver to retail investors under rule 204-5 and broker-dealers must deliver under a parallel Exchange Act rule, before or when the relationship begins. It is a short plain-language document describing the services, fees and costs, conflicts of interest, standard of conduct and disciplinary history. In a dispute it is the first document used to establish which capacity the firm was acting in.
What is a dual registrant and why does it matter?
A firm or individual registered both as a broker-dealer and as an investment adviser, which describes most large financial firms. It matters because the duty owed depends on the capacity in which each recommendation was made: advisory accounts carry the fiduciary duty for the whole relationship, brokerage accounts carry Regulation Best Interest per recommendation. Regulation Best Interest requires the firm to disclose the capacity, and the account agreements and statements show which rules governed which decision.
Do claims against an investment adviser go to FINRA arbitration?
Not unless the adviser is also a FINRA member broker-dealer and the claim concerns its brokerage business. FINRA's customer arbitration rules apply only to member firms and their associated persons. A claim against a stand-alone adviser goes to court or to the private arbitration forum, such as AAA or JAMS, named in the advisory agreement. When one representative at a dual registrant handled both kinds of accounts, the claims may land in two forums unless the parties agree on one.
Sources
- 15 U.S.C. § 80b-3 (Investment Advisers Act § 203) (registration of investment advisers; exemptions)
- 15 U.S.C. § 78o (Exchange Act § 15) (registration of brokers and dealers; membership in a registered securities association)
- SEC, Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release No. IA-5248 (2019) (adviser's fiduciary duty of care and loyalty; may not be waived; application follows the scope of the relationship)
- 17 C.F.R. § 240.15l-1 (Regulation Best Interest) (broker's best-interest obligation to retail customers at the time of the recommendation; disclosure, care, conflict and compliance components)
- 17 C.F.R. § 275.204-5 (Form CRS delivery) (advisers must deliver the relationship summary to retail investors before or at the time of the advisory contract and post it on their website)
- 17 C.F.R. § 275.204-3 (brochure delivery) (Form ADV Part 2 brochure delivered before or at the time of the advisory contract, with annual updates)
Legal sources last checked November 6, 2026. Statutes and rules change; the date matters.
About the author
Tina Wysk
Shareholder, Hallett & Perrin, P.C.. Tina represents businesses and individuals, as plaintiffs and defendants, in contract, partnership, fiduciary duty, fraud, construction, trade secret and investment disputes in Texas state and federal courts and in arbitration.
About TinaThis guide is general information about Texas and federal law for business owners, not legal advice about your situation. Statutes, rules and court decisions change, and small facts change outcomes. Reading it or contacting Tina Wysk through this site does not create an attorney-client relationship.
