Compare brokerage business models, explain know-your-client and suitability, and identify how firms are paid.
| Type | Service | Typical cost |
|---|---|---|
| Discount (self-directed) broker | Execution only; no advice | Low or zero commissions |
| Full-service broker | Advice, planning, research, new issues | Commissions or a fee of roughly 1% to 2% of assets |
| Robo-advisor | Automated portfolios of ETFs with rebalancing | Roughly 0.2% to 0.7% of assets plus fund fees |
| Portfolio manager | Discretionary management under a mandate | Percentage of assets, with a higher minimum account size |
| Mutual fund dealer | Sells mutual funds only | Embedded in fund fees |
Commissions and fees; the spread on principal trades; interest on margin loans; interest earned on clients' uninvested cash; payment for order flow (US); securities lending; currency conversion; and fees embedded in products.
Before recommending anything, a firm must collect and keep current the client's identity, financial circumstances, investment knowledge, objectives, time horizon, risk tolerance and risk capacity. Identity verification also serves anti-money-laundering rules, overseen by FINTRAC in Canada and FinCEN in the US.
The firm and the individual must understand the structure, risks, costs and features of every product they make available.
A recommendation, or a discretionary decision, must fit the client's KYC profile. Order-execution-only brokers give no recommendations and do no suitability review, which is why they are cheap.
In a non-discretionary account the client approves every trade. In a discretionary (managed) account the manager trades without asking, within a written mandate.
Firms must give relationship disclosure at account opening, trade confirmations, regular statements, and annual reports on fees paid and performance. In Canada, total cost reporting rules that took effect in 2026 extend the annual cost report to include the ongoing costs embedded in funds.
Advisor, wealth manager and financial planner are titles, not licences. What a person may legally do depends on their registration category. Module 10 shows how to check it.
Complain first to the firm in writing. If unresolved, Canadian investors can go to the Ombudsman for Banking Services and Investments (OBSI), which is free; US investors can use FINRA arbitration or mediation. Regulators accept tips but do not usually recover money for individuals.
The firm verifies identity (government ID, sometimes a credit bureau check), collects KYC information, explains the account type and fees, gives relationship disclosure and, for a margin or options account, assesses eligibility separately. Both Canadian and US firms must also ask for a trusted contact person: someone the firm may contact if it suspects financial exploitation or diminished capacity. Rules in both countries allow firms to place a temporary hold on a disbursement in those circumstances.
A 72-year-old retired client tells her advisor she needs income, has a low tolerance for risk and could not replace lost capital. The advisor puts half her account into leveraged ETFs because 'markets are strong'. The recommendation fails suitability on several counts: the products are designed for short-term trading, they can lose value even when the index goes nowhere (Module 9), and the concentration ignores her risk capacity. A complaint would very likely succeed, and the advisor could face discipline.
A firm must assess every product it offers and decide which clients it could be suitable for. Complex products, such as leveraged ETFs, structured notes and alternative funds, often carry extra approval steps. Offering a narrow shelf of the firm's own products does not breach KYP, but the firm must disclose that limitation.
Canadian order-execution-only dealers may not make recommendations, so they do no suitability assessment of trades. They still collect basic KYC and still must give best execution. A self-directed investor who buys a complex product online has no advisor to blame.
A $250,000 fee-based account charged 1.25% a year costs $3,125, plus the fees of the funds held inside it. A robo-advisor at 0.5% plus 0.2% fund fees costs $1,750. The difference of $1,375 a year compounds over decades; whether it is worth paying depends on the planning, tax and behavioural help received.
Every registered representative has a supervisor who reviews account openings, trades and complaints. Branch and compliance reviews look for patterns such as high turnover, concentration and unsuitable products. When misconduct is found, both the individual and the firm can be disciplined for failing to supervise.
Complete a KYC form on yourself: income, net worth, objectives, horizon, knowledge, risk tolerance and capacity. Then judge whether your current or paper portfolio is suitable for that profile and note any mismatch.
Educational content only; not investment, tax or legal advice. Companies, tickers and figures are illustrative examples, not recommendations. Rules, rates and limits change, so check current details with the regulator, exchange or tax authority before relying on them. Worked examples are not forecasts. Written by Elizabeta Dimoska. RiskStock is not a registered dealer or adviser.