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.

BREAKING DOWN 'Advisor'

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.

RELATED TERMS
  1. Investment Advisor

    An investment advisor is any person or group that makes investment ...
  2. Financial Advisor

    A financial advisor provides financial advice or guidance to ...
  3. Suitable (Suitability)

    A suitable investment meets a firm's, and often legal, criteria ...
  4. Fiduciary

    A fiduciary is a person who acts on behalf of another person, ...
  5. Investment Manager

    An investment manager is a person or organization that makes ...
  6. Know Your Client - KYC

    The Know Your Client form ensures investment advisors know details ...
Related Articles
  1. Financial Advisor

    Choosing A Financial Advisor: Suitability Vs. Fiduciary Standards

    Discover the differences between the Suitability and Fiduciary Standards when hiring a financial advisor.
  2. Tech

    How the Middle Class Can Pick the Right Advisor

    Regular folks need financial planning as much as wealthy folks. Here's how to find the right financial advisor.
  3. Personal Finance

    What Should You Look for in a Financial Advisor?

    Here are five important considerations for when you are choosing a financial advisor for your investment portfolios and your financial future.
  4. Financial Advisor

    How Does Your Financial Advisor Get Paid?

    Some questions to ask your financial advisor about the recommendations they make and how they get paid.
  5. Financial Advisor

    5 Facts Financial Advisors Wish You Knew

    These finance professionals have different titles and areas of expertise. Find out what you should know before you consult a financial advisor.
  6. Personal Finance

    Hiring An Advisor? Ask These 8 Questions First

    Asking these eight questions can help you avoid choosing the wrong financial advisor.
  7. Tech

    6 Questions to Ask a Financial Advisor

    Here are 6 questions you should ask to get to know a financial advisor before entrusting them with your financial well-being.
  8. Personal Finance

    How to Select a Financial Advisor to Work With

    If you are looking to engage a professional advisor, consider these important criteria.
  9. Financial Advisor

    The Pros & Cons of Partnering with a Broker/Dealer

    Financial advisors must determine a business model that meets their needs and meets the expectations of their clients.
  10. Tech

    The Coming Fiduciary Rule: Advisor, Client Impact

    The proposed DOL fiduciary standard has wide ranging implications for advisors and their clients. Here's an overview for advisors and their clients.
RELATED FAQS
  1. What fees do financial advisors charge?

    Learn how much financial advisors charge clients; discover the various payment plans available to customers seeking financial ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center