An investment adviser is an individual or firm that is registered with either the Securities and Exchange Commission or a state securities regulator. They provide advice about investments or conduct security analysis to clients for a fee, either through direct management of client assets or through publications or writings.
Investment adviser firms often have a level of discretionary authority that allows them to act on the behalf of their clients even without obtaining any formal permission before executing an action. A discretionary authority must be formally provided by the client, which is usually arranged during the on-boarding process of the client.
Investment Adviser Activities Regulation
Based on applicable regulations, investment advisors are prohibited from:
- Disseminating advice that is fraudulent or deceitful
- Acting as a principal on their own accounts, without prior written consent, by buying and selling securities for a client and themselves
Depending on the state or country where the activities are performed, additional restrictions may apply.
What Do Investment Advisers Offer?
Aside from providing investment advice, some investment advisers also offer one or a combination of the three listed below.
- Investment portfolio management.
- Financial planning services (if properly licensed).
- Brokerage services (example: buying or selling stock or bond).
What to Look for When Looking for an Investment Adviser
Looking for an investment adviser can be a challenging endeavour. But before selecting one, you need to know these first:
- Exact services you need
- Services the adviser can deliver
- Any limitations on the products the adviser can recommend
- Services you’re paying for and their costs
- How much the adviser gets paid
- Conflicts of interest an adviser may have when giving you advice
There are various investment adviser firms to choose from but choose the firm that has a solid background and an excellent reputation. You should also check out the firm and its employees. If the investment adviser you are considering is a registered investment adviser, check carefully their brochure. You can get a lot of information in there, such as the firm’s services, types of clients they have, fees and compensation, and many more.