Loading the player...

What is an 'Investment Advisor'

An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return for a fee. Investment advisor were defined by the Investment Advisers Act of 1940 as any person or group that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications. An investment advisor who has sufficient assets to be registered with the Securities and Exchange Commission (SEC) is known as a Registered Investment Advisor, or RIA. Investment advisors are also referred to as a "financial advisor" and could alternatively be spelled as "investment adviser" or "financial adviser."

Breaking Down 'Investment Advisor'

Investment advisors work as professionals within the financial industry by providing guidance to clients in exchange for specific fees. Often, investment advisors have a level of discretionary authority, allowing them to act of the behalf of their clients without having to obtain formal permission prior to executing an action. However, discretionary authority must be formally provided by the client, and it is generally arranged as part of the client on-boarding process.

Mutual fund companies are generally included in the definition of investment advisors, but stockbrokers are not as they receive fees from commissions and not asset-based compensation. Most investment advisors charge either a flat fee for their services or a percentage of the assets being managed. Generally, there are very limited conflicts of interest between investment advisors and their clients, because the advisor will only earn more if the clients' asset base grows as a result of the advisor's recommendations and securities selection.

Investment Advisor Clients

Clients can refer to various customers using the investment advisor’s services. This can include individual investors as well as corporate customers. Additionally, clients may have portfolios of any size to qualify as a client as long as any minimum requirements set forth by the investment advisor or the associated investment firm have been met.

Investment Advisor Regulation

Based on applicable regulations, investment advisors are prohibited from disseminating advice known to be deceitful or fraudulent and from acting as a principal on their own accounts by buying and selling securities between themselves and a client without prior written consent. Additional restrictions may exists depending on the state or country in which the activities are performed.

As of 2018, investment advisors or investment firms operating within the U.S. with assets totaling $100 million or more must register with the SEC. Investment advisors with lesser amounts of assets are still eligible to register but are only required to register at the state level. Additionally, records regarding investment advisors and the associated firms must also be kept in electronic format to facilitate inquiries regarding an investor’s status.

Investment advisors who are not required to register with the SEC or the state in which they operate, such as those working with venture capital funds, hedge funds and other private funds, may be required to file regular reports to the aforementioned regulators.

RELATED TERMS
  1. Advisor

    An advisor is any person or company involved in advising or investing ...
  2. Financial Advisor

    A financial advisor provides financial advice or guidance to ...
  3. Personal Financial Advisor

    A personal financial advisor is a professional who help individuals ...
  4. Advisor Fee

    An advisor fee is a fee paid by investors for professional advisory ...
  5. Advisor Account

    An advisor account is an investment account where investment ...
  6. IPO Advisor

    An IPO Advisor helps a company navigate the process of listing ...
Related Articles
  1. Financial Advisor

    Essential Questions for a Financial Advisor

    If you're a prospective financial advisor client (or an adviser), here are some questions you should ask ... and be prepared to answer.
  2. Financial Advisor

    Why Clients Leave Their Advisors

    Clients fire financial advisors for many reasons. Here's a rundown on why they're likely to do so and how to avoid losing any from your roster.
  3. Tech

    Going Independent: What Advisors Should Expect

    Thinking of going independent with your financial advisory practice? Here are some things to consider.
  4. Tech

    How Financial Advisors Pick Client Investments

    How advisors choose investment portfolios is varied, and investors are wise to check with theirs to find out how he or she makes their investment choices.
  5. Financial Advisor

    4 Tips on Being Upfront About Fees with Clients

    Advisors should be proactive in discussing fees so clients know what they are paying. Here are some pointers in how to start the conversation.
  6. Tech

    Top Trends Advisors Need to Stay Ahead of to Grow

    Advisors who want to grow their practice will need to stay ahead of these major trends.
  7. Financial Advisor

    A Financial Advisor’s Job Is Not to Beat the Market

    Understand what the real job responsibilities of a financial advisor are, and why they do not include picking investments that beat the market.
  8. Small Business

    How Bad Investment Advice Can Cost You

    Look out for investment advisors that cost you money with bad advice based upon their own self-interests, lack of knowledge and avoidance of due diligence.
  9. Personal Finance

    How to Select a Financial Advisor to Work With

    If you are looking to engage a professional advisor, consider these important criteria.
  10. Tech

    Advisors Need to Talk Less, Ask and Listen More

    Financial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
RELATED FAQS
  1. What fees do financial advisors charge?

    Learn how much financial advisors charge clients and discover the various payment plans available to customers seeking financial ... Read Answer >>
  2. Do financial advisors have a base salary?

    Find out how self-employed and corporate financial advisors make a living. Find out whether they get paid based on commission ... Read Answer >>
Trading Center