Investment Advisors: What They Do, Prices and Whether You Need One

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.

Is an investment advisor worth the cost?

Investment advisors typically charge clients a percentage of the assets they manage. For example, let's say an investment advisor is managing three accounts for you: a traditional IRA, a Roth IRA and a taxable brokerage account. The advisor will charge an AUM fee on the total balance of those accounts. If the traditional IRA has $100,000, the Roth IRA has $50,000 and the taxable brokerage account has $300,000, that AUM fee will be applied to $450,000. If the AUM fee is 1% — which is an industry average — you'll pay $4,500 a year.

That $4,500 is generally charged quarterly or monthly rather than annually; for example, you might pay in four quarterly installments of $1,125. Generally that fee is taken directly out of your investment accounts. Your agreement with the investment advisor will get specific about all of these details.

Now, do you really need an investment advisor — and is it worth that cost? That depends on how comfortable you are selecting, monitoring and managing investments yourself.

Generally speaking, the more complicated your financials, the more valuable professional help can be. If you feel your money isn't working hard enough, an advisor can help figure out next steps. Many investment advisors don't just manage investments — they may also provide overall financial guidance, including recommendations on insurance coverage, estate planning needs and retirement planning.

For simpler finances or a lower-cost option, a robo-advisor might be a better choice. Robo-advisors will build and manage an investment portfolio for you, but generally do not offer comprehensive financial planning services beyond that.

» How to choose between a robo-advisor and a financial advisor

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. While “financial advisor” can refer to many different types of financial professionals, an investment advisor is a legally regulated term.

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 AUM below that threshold are typically regulated by the state^[0]

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.

How do I vet an investment advisor?

For starters, confirm that the advisor is registered with the SEC or state. Registered investment advisors, or RIAs, have a fiduciary duty to their clients. This means they are legally obligated to act in their client's best interest and eliminate or disclose any potential conflicts of interest ^[0]

Investment advisors do not have to take a specific qualifying exam, but they generally must meet certain licensing requirements. 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, save on taxes, plan for retirement or pay down debt — in addition to investment advice.

When vetting a potential investment advisor, take these additional steps:

1. Be clear about what you’re looking for: Make sure their certifications or licenses meet your needs. 

2. 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. We have a full list of questions to ask a financial advisor.

3. 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.