Investment Adviser
An investment adviser is a person or firm that provides advice about securities for compensation, regulated by the SEC (if managing $100M+) or state regulators, and held to a fiduciary standard.
Exam Tip
IA = fiduciary standard. $100M+ = SEC registration. Form ADV = disclosure document.
What is an Investment Adviser?
An investment adviser (IA) is any person or firm that, for compensation, engages in the business of advising others about the value of securities or the advisability of investing in securities.
Three-Prong Test
To be classified as an investment adviser, all three must apply:
| Element | Requirement |
|---|---|
| Advice | Provides advice about securities |
| Business | In the business of giving advice |
| Compensation | Receives compensation for advice |
Registration Requirements
| Assets Under Management | Register With |
|---|---|
| $100 million+ | SEC |
| $25-100 million | State (unless eligible for SEC) |
| Under $25 million | State |
Fiduciary Duty
Investment advisers owe clients a fiduciary duty:
- Act in client's best interest
- Full disclosure of conflicts
- Loyalty - put client first
- Care - provide suitable advice
Key Regulations
| Regulation | Purpose |
|---|---|
| Investment Advisers Act of 1940 | Federal regulation of IAs |
| Form ADV | Registration and disclosure document |
| Form ADV Part 2 | Client brochure with fees, conflicts |
IA vs. Broker-Dealer
| Factor | Investment Adviser | Broker-Dealer |
|---|---|---|
| Standard | Fiduciary | Suitability/Reg BI |
| Compensation | Fees (usually AUM-based) | Commissions |
| Relationship | Ongoing | Transactional |
| Registration | SEC or State | SEC and FINRA |
Investment Adviser Representative (IAR)
Individuals who give advice on behalf of an IA must register as IARs with the state(s) where they have clients.
Study This Term In
Related Terms
Fiduciary
GeneralA fiduciary is a person or organization legally obligated to act in the best interest of another party, putting the client's interests ahead of their own.
Broker-Dealer
GeneralA broker-dealer is a financial firm that buys and sells securities for its customers (broker) and for its own account (dealer), regulated by FINRA and the SEC.
SEC (Securities and Exchange Commission)
GeneralThe SEC is the U.S. federal agency responsible for enforcing securities laws, regulating securities markets, and protecting investors from fraud and market manipulation.