AFP Practice Exam 2025 – Complete Prep Guide

A registered investment advisor (RIA) is distinguished from a broker-dealer primarily by the fiduciary duty owed to their clients. This means that RIAs are legally required to act in the best interest of their clients when providing advice. They must prioritize the interests of their clients over their own and disclose any potential conflicts of interest. This fiduciary standard ensures that the advice given is tailored to the client's needs and circumstances, fostering a relationship built on trust and accountability.

In contrast, broker-dealers are under a different standard of conduct that does not necessarily require them to prioritize the client's interest. They often operate on a suitability standard, which means that they must ensure that the products they recommend are suitable for the client based on the client’s financial situation and needs, but they are not required to put the client's interests first in the same way that RIAs are.

This distinction is essential for investors to understand, as it affects the level of service and the nature of the relationship they can expect from either type of financial professional. The existence of fiduciary duty in RIAs is significant in building a client's trust and ensuring that the advisor's recommendations are genuinely in the best interest of the client.