A customer might also be someone who would use a Registered Investment Advisor on a one-time basis. A customer may hire the RIA to simply review and evaluate his portfolio once and never again. The customer may ask the RIA to help him only in a very limited area of concern or only in evaluating a single investment.
The RIA has no ongoing obligation or commitment to this person because that is not the object of the contact. On the other hand, being a client is advantageous for both parties. To a broker, a client is, in many ways, the opposite of a customer. In this relationship, the broker is almost always in control of managing the assets, at least the assets that are in the account at his firm. That doesn’t mean the broker is managing the assets on a discretionary basis but rather that the client is relying on the broker to make the majority of recommendations and decisions. Even if there is not a lot of communication between client and broker, and hence trading, there should be a detailed and clear understanding and agreement as to how the account is to be managed.
Money managers and RIAs who run small shops tend to mostly have clients as opposed to customers. Their clients want a longterm, dependent relationship. Brokers are more likely to attract some individuals who are only looking for an occasional execution of a trade. Brokers may acquire accounts because a broker at his firm left to join another brokerage firm. Most RIAs are, and should be, financial planning oriented, not trade oriented. If they aren’t, go elsewhere. The only caveat is that there are RIAs like Douglas who do a percentage of their business rendering second opinions. Some of the individuals for whom Douglas has rendered second opinions he refers to as clients and others as customers.
For clients, there is reliance, trust, commitment, and often a fiduciary relationship with the broker, which may not exist in a customer relationship. This is not to say that a broker or advisor still cannot fulfill legal and ethical requirements when dealing with a customer versus a client. From the legal standpoint, the broker that calls you from New York trying to hustle you into some hot stock he is pushing has the same legal standards to follow as your regular broker who talks to you every day.
We separate the two relationships mostly for you to better understand. You should decide early on in any relationship which type you prefer.1 Before online firms exploded on the scene, it was common for an investor to have a discount brokerage account at Schwab or Brown & Company and always talk to a broker when entering trades. The majority of the time it didn’t matter which brokers the investor talked to because they were merely order takers and were not distributing advice. You were always a customer. With online firms, you don’t even have the opportunity to talk to a broker, with certain exceptions, and your status is solely that of a customer.
If you have an account at a major brokerage firm and are paying its high commissions, you had better be treated like a client. If you aren’t, move your account tomorrow. There are plenty of brokers who will treat you like a client.
Source: BEING A CLIENT VERSUS BEING A CUSTOMER
