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Investment broker vs. investment advisor: who should you choose?

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What’s the difference? Which is better?  

Let me try to clear up some of the confusion. In the investing world, there are two standards of care that can be given by financial service providers: the fiduciary standard and the suitability standard. Before we look at the differences between brokers and advisors, let’s first define the two standards.

The fiduciary standard – Your financial service provider must advise you without conflicts of interest and for your sole benefit as the client they serve, always putting your interests above their own. The fiduciary standard of care was established by the Investment Advisors Act of 1940.

The suitability standard – Your financial service provider must make recommendations consistent with your best interests and in line with your investment objectives and tolerance for risk. Suitability rules are established by the Financial Industry Regulatory Authority (FINRA).

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Some believe that there should be a uniform standard of care. In the wake of the 2008 financial crisis, legislators in Washington D.C signed the Dodd-Frank Act into law in July 2010. Part of the act directs the Securities Exchange Commission (SEC) to study the need for establishing a new, uniform standard of care for the investment industry. To this day, multiple agencies, industry groups and regulators continue to debate what that standard should be, and there are plenty of arguments for and against a uniform standard. The debate has been going on for years with no resolution. Here’s why: there is not just one right answer.

On its surface, a uniform standard makes perfect sense. In reality, consumers of financial services may need a provider operating under either or both standards and many providers are able to act as both, depending on the needs of the client.

Now, let’s take a look at the difference between advisors and brokers.

Investment advisors

Investment advisors provide a fiduciary standard of care. They give advice on what to invest in and will typically charge a fee for their advice on an ongoing and fully-disclosed basis. It could be either a flat fee or a percentage of your investment assets. Investment advisors are regulated by the SEC and the states in which they do business.

Investment brokers and agents

Investment brokers and insurance agents provide a suitability standard of care. They sell financial products like stocks, bonds, mutual funds, life insurance and annuities. Brokers and agents typically charge a commission on the product they sell or are paid a commission by the product manufacturer. Investment brokers are regulated by FINRA and the states in which they do business. The states also regulate the insurance industry.

So which is better, broker or advisor?

Again, there is no right answer. For example, perhaps you need help with planning for retirement and have a nest egg to invest, but don’t have the time or inclination to invest the money. An investment advisor that can do the planning, choose investments, monitor your portfolio and make changes along the way may be a good choice for you.

Or, maybe you know that you want to buy or sell a stock, bond, mutual fund, buy life insurance, an annuity or even add gold or silver to your portfolio. A broker or agent can help you make the transaction.

Who should you choose?

Depending on your situation and needs, it could be one or the other or both. When searching for a provider, look for a person or firm by clearly communicating your needs:

  • your expectations for service,
  • asking what you will receive,
  • when you’ll receive it and
  • how much it costs.

Many financial firms can provide both brokerage and advisory services, so there are many providers to choose from with varying products, services and service levels. Like anything else you buy, shop around, ask questions and take your time to find the right fit.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.



UMB Private Wealth Management is a division within UMB Bank, n.a. that manages active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts and individuals.  UMB Financial Services Inc * is a wholly owned subsidiary of UMB Bank, n.a. UMB Bank, n.a., is an affiliate within the UMB Financial Corporation. Banking and trust services offered through UMB Private Wealth Management, a division within UMB Bank, n.a.


UMB Financial Services Inc * is a wholly owned subsidiary of UMB Financial Corp and an affiliate of UMB Bank, n.a.

This report is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. Statements in this report are based on the opinions of UMB Private Wealth Management and the information available at the time this report was published.

All opinions represent our judgments as of the date of this report and are subject to change at any time without notice. You should not use this report as a substitute for your own judgment, and you should consult professional advisors before making any tax, legal, financial planning or investment decisions. This report contains no investment recommendations and you should not interpret the statements in this report as investment, tax, legal, or financial planning advice. UMB Private Wealth Management obtained information used in this report from third-party sources it believes to be reliable, but this information is not necessarily comprehensive and UMB Private Wealth Management does not guarantee that it is accurate.

All investments involve risk, including the possible loss of principal. This information is not intended to be a forecast of future events and this is no guarantee of any future results. Neither UMB Private Wealth Management nor its affiliates, directors, officers, employees or agents accepts any liability for any loss or damage arising out of your use of all or any part of this report.

“UMB” – Reg. U.S. Pat. & Tm. Off. Copyright © 2012. UMB Financial Corporation. All Rights Reserved.

*Securities offered through UMB Financial Services, Inc. member FINRA, SIPC, or the Investment Banking Division of UMB Bank, n.a.


Insurance products offered through UMB Insurance, Inc. You may not have an account with all of these entities. Contact your UMB representative if you have any questions.

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Tips for rolling over your retirement plan

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Changing careers? Retiring? Besides experience, one of the most important things you may take with you is your previous employer’s retirement plan assets. Before you make that decision, there are a few options to consider:

  • Keeping some or all of your assets in your former employer’s plan, if permitted;
  • Rolling over the assets to your new employer’s plan, if one is available and rollovers are permitted;
  • Rolling over your plan assets to an IRA; or
  • Cashing out the account value.

There are pros and cons to each of those choices, depending on your unique financial needs and retirement plans. Be sure to consult with your previous plan administrator, your new employer’s plan administrator (if applicable) and tax or legal professionals to address your questions about the asset transfer options and the tax consequences of each choice.

So what are the differences between employer plan(s) and rollover IRAs for you to take into consideration? Here are some of the factors that may be relevant to your specific needs:

retirement plan rollover

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Investment Options:

  • Rollover IRA — often enables an investor to select from a broader range of investment options
  • Employer-sponsored retirement plan – smaller range of investment options, but more options in other areas

You’ll need to ask how satisfied you are with the options available under your current or prospective plan in comparison with an IRA’s array of investments. Evaluate and compare investment options for each of the following:

  • Your previous employer-sponsored plan
  • Your new or current employer-sponsored plan, if applicable
  • Rollover IRA

Fees and Expenses:

Both employer-sponsored retirement plans and rollover IRAs typically involve:

  • investment-related expenses, including:
    • Sales loads, commissions, 12b-1 fees, investment advisory fees and other expenses of any mutual funds in which assets are invested
    • Commissions and some of these fees may be paid to the broker-dealer or advisor (such as UMB Financial Services, Inc.) who helps open and service the rollover IRA.
  • plan or account fees, including:
    • Plan administrative fees (e.g., record keeping, compliance, trustee fees) and fees for services such as access to a customer service representative. In some cases, employers pay for some or all of the plan’s administrative expenses. Evaluate and compare each of the following:
        • Investment-related expenses and plan fees at your previous employer-sponsored plan
        • Investment-related expenses and plan fees at your new or current employer-sponsored plan, if applicable
        • Investment-related expenses and account fees associated with a rollover IRA


Different levels of service may be available under each transfer option. Some employer-sponsored plans, for example, provide access to investment advice, planning tools, telephone help lines, educational materials and workshops. Similarly, IRA providers offer different levels of service, which may include online, discount or full brokerage services, investment advice and retirement and distribution planning. It is important to evaluate and compare the services available through each of the following retirement vehicles:

  • Your previous employer-sponsored plan
  • Your new or current employer-sponsored plan, if applicable
    • A  rollover IRA

Penalty-Free Withdrawals:

Penalty-free withdrawals may be available if you’re between 55 and 59½ when you leave an employer-sponsored plan. However, penalty-free withdrawals usually cannot be made from a rollover IRA until age 59½. It also may be possible to borrow from an employer-sponsored plan. Generally, borrowing from your rollover IRA is considered a prohibited transaction, which would subject you to penalties and even potential disqualification of the IRA.

Protection from Creditors and Legal Judgments:

Under federal law, you usually have unlimited protection from bankruptcy and creditors with the funds you have in employer-sponsored plans. With IRA assets, however, state laws vary in their protection from the claims of creditors. Protecting retirement assets from claims of creditors can be very complicated, so you should discuss any questions relating to your personal situation with competent legal counsel.

Required Minimum Distributions:

Once an individual reaches age 70½, the rules for plans and traditional IRAs require the periodic withdrawal of certain minimum amounts, known as the required minimum distribution. If a person is still working at age 70½, however, required minimum distributions generally are not mandatory in an employer plan. This may be advantageous if you plan to work into your 70s.

Employer Stock:

If you have any employer stock in your retirement plan, we highly recommend seeking advice on how to handle that stock. Here’s why: Your employer stock distributions are taxed differently. When employer stock is distributed in a lump sum, in-kind, from an employer-sponsored retirement plan, the employee is taxed only upon the stock’s cost basis at the time of distribution. Later, when the stock is sold after the distribution from a qualified plan, the proceeds are treated as long-term capital gain to the extent attributable to net unrealized appreciation.

An investor who holds significantly appreciated employer stock in an employer-sponsored retirement plan should carefully consider the tax consequences of rolling the stock to an IRA vs. taking a lump sum, in-kind distribution of the stock from the plan or leaving the stock in the plan. This is a very complicated issue which is why it should be discussed with your tax advisor.


If you ultimately decide to roll over your employer plan assets, it is important to read the IRA rollover plan information and all applicable investment literature and prospectuses carefully before deciding to invest in an IRA rollover. Past investment performance does not guarantee future results, and the value of your investment will fluctuate and may be more or less than the original investment.


The foregoing discussion is provided for informational purposes only and should not be considered as tax or legal advice. You should consult with your own legal and/or tax advisors for advice about your personal situation.

Not FDIC Insured   ●   May Lose Value   ●   No Bank Guarantee


When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

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