I'm not sure how much the average investor knows but there's a very significant battle being waged right now by lawmakers and the SROs of our industry about the Fiduciary Standard. As it stands now, advisors are compensated in one of two ways - fees or commissions.
For an advisor to be paid by commission, they have to hold a Series 7 license and be registered with a Broker/Dealer (B/D). An advisor who wants to be paid by fees (whether flat, hourly, asset-based or other) must hold a Series 63/65/66 license and be registered with a Registered Investment Advisor (RIA). Many advisors are dual-registered and can be paid via commissions, fees or both. But here's where the difference applies to our topic: a financial instrument that is sold through a B/D is subject to "suitability" and a financial instrument sold through an RIA is subject to a "fiduciary standard." This means that a B/D broker need only ensure that what you buy is suitable - NOT necessarily what is the best product for your need.
A very common occurrence is that more than one produce meets the suitability standard, but the broker may be paid more on one versus another, and the products may not be of equal quality. I'll tell you, when this happens to an advisor, he or she will almost always try to get you to buy the product that pays him/her more and use the other product as a fall-back. Again, per my disclaimer in sentence #1, I'm not making a judgement. What further muddies the waters is that when an advisor affiliates with a B/D, they become a fiduciary to the Broker/Dealer! Yes, this means that it is a contractual commitment that the broker put the interests of the B/D ahead of the client. For more on this, visit this article from Morningstar Advisor. [sorry, the original URL is not functioning]
Let's contrast this with a fee-only (not fee-based - that's not the same) advisor who is under the fiduciary standard. This advisor is required by the SRO and the RIA to meet this standard of care and deliver to his/her client the tool that produces the highest value to the client based on the need of that client. From the article I linked above: "the U.S. Supreme Court made clear in S.E.C. v. Capital Gains Research Bureau, Inc. (375 U.S. 180 (1963)) that an RIA is a fiduciary." What is going on in Washington is a fight between lawmakers, SROs, and industry associations about oversight and whether the fiduciary standard should also apply to advisors affiliated with a B/D. This came to more of a head with the financial devastation of 2008 and advisors selling products that were marginally suitable at best. The question is whether this will actually go anywhere. My guess is that it won't, especially with all the other issues that face our government from a broader economical viewpoint. Regardless, now you understand the difference and can make a more informed decision about how you want to choose your next financial advisor.