Kelsey Lyman, Director of Operations, Convergence Financial
Logan Clark, Assistant Investment Research Analyst, Convergence Financial
There is no shortage of opinions on account options for your investments, and there are many things to
take into consideration when deciding which type of account is right for you. What exactly does it mean
to have a brokerage account? Are they more expensive than the alternatives? How does a brokerage
account differ from an advisory account? In this blog, we’ll discuss the variations of brokerage and
advisory accounts, and how you can maximize the unique elements of each for your portfolio.
Put simply, the primary difference between brokerage and advisory accounts held with a financial
advisor is the fee structure. Brokerage accounts incur fees when trades are placed, meaning the more
trades placed, the greater the account fees. Advisory accounts are nearly the opposite – they charge a
flat annual fee, assessed quarterly, and based on a percentage of the account’s value. In addition,
advisory accounts can be either “wrap” or “non-wrap”, meaning that any extraneous fund fees or ticket
charges are either “wrapped” in with the account fee or charged in addition to the account fee. It’s
entirely dependent on individual financial advisors’ firm structure and their licensing which can make it
challenging for individual investors to determine what’s most appropriate for their portfolios.
Advisory accounts can provide a lot of benefits to an investor, but the upside is entirely dependent on
their personal needs. Advisory accounts are a great fit for portfolios that place trades frequently or hold
many positions that need to be rebalanced. The primary characteristic of advisory accounts is that the
fee is advice-based and is part of an ongoing relationship with an advisor. For investors who prefer
advice and planning conversations throughout the year, advisory accounts are the best way to get the
most bang for your buck.
Brokerage accounts, however, might be better suited for investors who desire to manage their
portfolios themselves or don’t feel they need regular consultation on their investments. For example, an
investor who’d prefer to buy and hold mutual funds with no intention of occasional rebalancing might
find brokerage accounts to be more their style, since fees are primarily generated when trading activity
While there are best fits for either account type, neither is perfect and both have some drawbacks. For
smaller accounts and investors with a less-complex financial picture, an advisory fee may not bring the
value that it would for a larger investor who appreciates ongoing investment advice and planning
assistance. Similarly, if an investor desires to trade specific investments frequently inside their portfolio,
brokerage fees for that trading activity can eat into returns quickly. For example, if an investor earns a
10% return but pays 2% in fees, they would only net an 8% return.
Your experienced advisor can help you determine whether a brokerage or advisory account is the
appropriate fit for you. A mix of both may be the right choice, too, depending on your specific needs and
desires. Personal financial situations are all very different and care should be taken to ensure that you
make the right move for your portfolio.
The opinions voiced are for general information only and are not intended to provided specific advice or
recommendations for any individual.