What is an 'Advisor'

An advisor can be any person or company involved with advising or investing capital for investors. Registered investment advisors and investment advisory companies are two main entities that investors look to for investment management.


Advisors have expertise in investment management. Registered investment advisors provide financial advice and comprehensive personal investment management services. Investment advisory companies manage publicly traded fund portfolios for investment by individual investors. Both types of advisors provide important financial services and are required to follow specific rules detailed in U.S. government legislation.

Registered Investment Advisors

Registered investment advisors serve the needs of individuals. They are often classified into two categories based on their services. U.S. legislation in the Investment Advisors Act of 1940 also outlines their obligations. Financial advisors providing comprehensive services are required to follow the fiduciary standard while broker-dealer representatives must only adhere to the suitability standard.

An individual will typically choose to work with either a full-service financial advisor or a broker-dealer representative based on their individual needs. Full-service financial advisors can help clients in long-term financial planning, holistic asset management, individual securities trading and more. They typically charge fees based on a percentage of assets. They are governed by the fiduciary standard which requires due diligence to ensure that investments and investment decisions are in the best interest of the client.

A broker-dealer representative will focus on enacting trades directed by the client and may have broader access to market securities than a standard discount brokerage platform. Broker-dealer reps are paid on commission. They must only follow the suitability standard which requires them to ensure that the traded security is a logical fit for the client but they are not held to a broader fiduciary standard.

Investment Companies

Management investment companies can also be considered investment advisors as they are responsible for directing the investments of the funds they manage. Investment companies offering publicly traded funds are required to adhere to the rules and regulations of the Investment Company Act of 1940.

A fund advisor has the primary responsibility for the investment performance of a fund. Advisors receive an annual management fee, which is computed as a percentage of a fund's assets under management. The fee makes up a large portion of a fund's operating expenses. For fund investors, judging the quality of a mutual fund's portfolio management is one of the most important considerations for investing in a fund.

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  3. Suitable (Suitability)

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  6. Know Your Client - KYC

    The Know Your Client form ensures investment advisors know details ...
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