Are you planning to invest in the stock market? Well if your answer is yes, you must have come across two entities – stock brokers and investment advisors. While both of these perform entirely different functions, investors often get confused amongst the two.
Today, we will take a look at both these entities and understand the functions each one of these will perform for you. It must be noted that the Securities and Exchange Board of India, commonly known as SEBI is the regulating body for both of these. While it is a necessity to have a broker before entering the stock market, having an advisor is more of a necessity. As per the guidelines of SEBI, an advisor can never provide any brokerage service, therefore you need to choose both of these for all your investment needs separately.
A broker is a member of the stock exchanges who provides execution and broking services whereas an advisor guides you with your investment by providing investment recommendations based on qualified research.
Let us take a look at the function of each of these entities and find out the differences and importance of each one of them.
Table of Content
Stock Brokers VS Investment Advisors
What are Stock Brokers?
Stock Broker are members of the stock exchange who provides trade execution services to their clients of investors and charge some amount as brokerage against their services. You need to have a trading account with any of the stock broker before you could start trading or investing in the stock market. The more you trade in the market, the higher will be your broker’s revenue.
For a body to provide execution services, it is mandatory for them to be a member of at least one stock exchanges and have a valid SEBI registration number. In case the broker fails to provide proper services to their clients, the client can lodge a complaint against the, in SEBI’s grievance redressal system known as SCORES.
What are Investment Advisors?
Investment Advisors can be individuals or corporate bodies who have nothing to do with trade execution. These entities have a team of well-qualified market analysts and researchers who study markets by performing technical and fundamental analysis and provide trade recommendations to their clients based on the same. The investment advisors usually charge a fixed sum of money from their clients for providing their services.
To be a legal investment advisor, one needs to necessarily register themselves with SEBI. Any advisor who is providing advisory services without holding a SEBI registration number is now illegal in India. CapitalVia is a SEBI registered investment advisory company who provides research based trade recommendations to their clients in equities, derivatives and commodities.
Stock Brokers vs Investment Advisors
Some brokers do provide advisory services to their clients; however, many investors do not prefer opting for advisory services from brokers. The reason being these recommendations may or may not help you in earning profit. However, they will certainly increase your trade volume with the broker which will help in the broker generating more and more revenue. The broker is an entity who earns from every trade you place irrespective of your profit or loss.
On the other hand, SEBI has barred investment advisors to be associated directly or indirectly in any execution service. Therefore, advisors focus only on providing research-based trade recommendations to their clients with the sole intention of client success. SEBI keeps a sharp eye on the functioning of these entities. An investment advisor usually charges a fixed amount from investors which has nothing to do with the trade volume. Therefore, the trades provided by these advisors are based extensively on market research and are unbiased.
Conclusion
It is mandatory for an investor to be associated with a stock broker before entering the market. However, people often ignore investment advisor, and this is where they fail as an investor. To be a successful investor in the market, market research and analysis is very important. Having an investment advisor helps you by researching the markets on your behalf and providing you recommendations based on it. All you need to do is simply follow those recommendations and place orders with your stock broker.
Happy Investing!
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