An investment advisor is defined as any person or group that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications. An investment advisor who has sufficient assets to be registered with the Securities and Exchange Commission (SEC) is known as a Registered Investment Advisor, or RIA.
Investment advisors work as professionals within the financial industry by providing guidance to clients in exchange for specific fees. Often, investment advisors have a level of discretionary authority, allowing them to act of the behalf of their clients without having to obtain formal permission prior to executing an action. However, discretionary authority must be formally provided by the client, and it is generally arranged as part of the client on-boarding process.
Most investment advisors charge either a flat fee for their services or a percentage of the assets being managed. An Advisor has an affirmative duty to make full and fair disclosure of all material facts, particularly where the Advisor’s interests may conflict with the client’s. As a fiduciary, Advisors are required to make full and fair disclosure to clients about the fees they charge.
Clients can refer to various customers using the investment advisor’s services. This can include individual investors as well as corporate customers. Additionally, clients may have portfolios of any size to qualify as a client as long as any minimum requirements set forth by the investment advisor or the associated investment firm have been met.
Regulation of Investment Advisor Activities
Based on applicable regulations, investment advisors are prohibited from disseminating advice known to be deceitful or fraudulent and from acting as a principal on their own accounts by buying and selling securities between themselves and a client without prior written consent. Additional restrictions may exists depending on the state or country in which the activities are performed. As of 2010, investment advisors or investment firms operating within the U.S. with assets totaling $100 million or more must register with the SEC. Investment advisors with lesser amounts of assets are still eligible to register. Additionally, records regarding investment advisors and the associated firms must also be kept in electronic format to facilitate inquiries regarding an investor’s status. Investment advisors who are not required to register with the SEC or the state in which they operate, such as those working with venture capital funds, hedge funds and other private funds may be required to file regular reports to the aforementioned government institutions.
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Dave Kimbler is a financial advisor with forty-one years’ experience, and has been working in the investment and insurance industry since 1976. Dave focuses primarily on advising and managing assets for Kimbler’s clients.