Investment Advisors: Definition, Prices and Whether You Need One
Investment advisors build and manage investment portfolios. They must register with either the state or the SEC.
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An investment advisor (sometimes spelled "investment adviser") is a company or person who is registered with a state or federal regulator that permits them to choose, manage and recommend investments for clients.
Unlike other financial advisors who may not be regulated, investment advisors are regulated by their state or the U.S. Securities and Exchange Commission (SEC) depending on how much money they manage. Investment advisors may also offer services such as retirement planning.
How much does an investment advisor cost?
Investment advisors typically charge clients a percentage of the assets they manage. But they also may charge flat fees or an hourly rate for certain services. Here’s a look at the average cost of an advisor.
Fee type | Typical cost |
|---|---|
Assets under management (AUM) | 0.25% to 0.50% annually for a robo-advisor; about 1% for a financial advisor. |
Flat annual fee (retainer) | Typically $2,500 to $9,200. |
Hourly fee | $200 to $400. |
Per-plan fee | Typically $3,000, but the cost will vary by service. |
Commission | 3% to 6% of investment transaction amount. |
» Learn more: How much does a financial advisor cost?
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Is an investment advisor worth the cost?
Do you really need an investment advisor? That depends on how comfortable you are selecting, monitoring and managing investments yourself.
Generally speaking, the more complicated your financial situation, the more likely you are to benefit from professional help. If you feel your money could be doing more for you and you’re not sure where to start, it may be a good idea to speak to an investment advisor or financial advisor.
If your finances are more straightforward or you want an inexpensive alternative, consider using a robo-advisor.
» MORE: Check out our roundup of the best robo-advisors.
What is the difference between an investment advisor and a financial advisor?
The terms investment advisor and financial advisor are often used interchangeably, but they are not the same.
“Financial advisor” is a catch-all phrase referring to many different types of financial professionals.
“Investment adviser,” or investment advisor, is a legally regulated term for individuals or companies that are registered with the SEC or a state regulator.
Since the term financial advisor casts a wide net, it's tricky to know whether someone can legally give investment advice. For starters, it's a good idea to confirm that the advisor is registered. Registered investment advisors, or RIAs, have a fiduciary duty to their clients, meaning they are obligated to advise in their clients’ best interest and disclose potential conflicts of interest.
Investment advisors do not have to take a specific qualifying exam, but they generally must meet certain licensing requirements in order to practice. Many investment advisors also have other certifications, such as certified financial planner (CFP) or chartered financial analyst (CFA). These designations may allow them to offer more holistic financial guidance — for example, advice on how to budget, consult on taxes, plan for retirement or pay down debt — in addition to investment advice.
When vetting a potential investment advisor, take these steps:
Be clear about what you’re looking for: Make sure their certifications or licenses meet your needs.
Interview them to find the right fit: Always ask about their qualifications, if they have a fiduciary duty to their clients and how they get paid.
Verify their credentials: You can look up an investment advisor’s background through the Financial Industry Regulatory Authority’s BrokerCheck, which offers information on both SEC- and state-registered investment advisors.
» Want to know more? Learn how to choose a financial advisor.
Who must register as an investment advisor?
According to the U.S. Investment Advisers Act of 1940, an investment advisor is a person or firm that provides advice to others or issues securities reports or analyses for compensation. Any financial professional who fits that description must register as an investment advisor, or qualify for an exception.
This mandatory registration, and the regulation that follows, is what makes investment advisors unique. The SEC shares the duty of regulating these advisors with state securities regulators.
The SEC oversees investment advisors who have at least $110 million in assets under management (AUM). Investment advisors with AUMs below that threshold are typically regulated by the state. An investment advisor can voluntarily register with the SEC once they reach $100 million, but they are generally required to do so when their AUM passes the $110 million threshold.
The SEC and the state securities regulators set requirements for investment advisors to hold them accountable. For example, all investment advisors registered with the SEC must have a written policy on insider trading, privacy and a code of ethics.
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