A financial advisor or an investment advisor (IA) as he is also referred, is an individual (or a firm) who provides his services for a fee or an asset based compensation. He gives guidance regarding investment options and also handles security analysis. That is, he considers, evaluates and manages financial instruments and portfolios of securities like stocks, bonds, etc. that are traded on stock exchanges. This he does in two ways – either by meeting clients directly and independently or in writing through books, magazines, brochures, newsletters or pamphlets. Mutual fund companies are also classified as investment advisors.
A RIA is a registered investment advisor who has been registered with the Securities and Exchange Commission (SEC). It is imperative that investment advisors who handle assets worth $100 million or more are registered, while those with lesser assets are eligible, but not compelled to enroll with the SEC.
Maintaining records of all transactions that they do is essential, in case a scrutiny is necessitated. And those investment advisors who deal with venture capital or hedge funds, although are not required to register with either the SEC or with the respective State’s securities agency, must file official reports periodically.
Investment advisors are eligible to make decisions on behalf of their clients, thus eliminating the need for them to get permission for every single transaction. This authorization is given by the customer formally when he enlists with the IA. Rules and regulations are in place to prevent the advisor from acting on his own, without the knowledge or written consent of the clients.
Unlike stockbrokers who get paid only on a commission basis for the trading of securities, investment advisors have a slightly clearer relationship with their customers. There is a minor clash of interest between them since the advisor’s compensation is either a prescribed flat fee or a percentage based on the value of the client’s assets. If the suggestions of the investment advisor work well and the customer gains money through the investment, then he would earn more. Bank on an experienced advisor for your financial needs.