The term Investment Advisor (IA)
(spelled "Investment Adviser" within U.S. financial law) is an individual or firm who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities . Investment Advisors may be registered with state regulatory agencies, the Securities and Exchange Commission, or pursuant to certain exemptions, remain unregistered.
IAs generally are paid in one of the following ways:
- A percentage of the value of the assets they manage
- An hourly fee for the time they spend working
- A fixed fee
The anti-fraud provisions of the Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
and most state laws impose a duty on IAs to act as fiduciaries in dealings with their clients. This means the adviser must hold the client's interest above its own in all matters. The Securities and Exchange Commission (SEC) has said that an adviser has a duty to:
- Make reasonable investment recommendations independent of outside influences
- Select broker-dealers based on their ability to provide the best execution of trades for accounts where the adviser has authority to select the broker-dealer.
- Make recommendations based on a reasonable inquiry into a client's investment objectives, financial situation and other factors
- Always place client interests ahead of its own.
Registered Investment Advisor
The term Registered Investment Adviser is used to describe an Investment Adviser who is registered with the Securities and Exchange Commission or a state's securities agency. The term has been popularized due to its use within the Investment Advisers Act of 1940 and its association to the term...
Refers to an IA that is registered with the SEC or a states securities agency and typically provides investment advice to a Retail investor or registered Investment company
An investment company is a company whose main business is holding securities of other companies purely for investment purposes. The investment company invests money on behalf of its shareholders who in turn share in the profits and losses....
such as a Mutual Fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
, or Exchange-Traded Fund
An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
. Registration does not signify that the SEC has passed on the merit of a particular IA.
Unregistered Investment Adviser:
Refers to an IA that is not registered with the SEC or a states securities agency and typically provides investment advice to private pools of capital. Such an investment pool is commonly known as a Hedge Fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
or a Private equity fund
A private equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity....