An investment adviser provides advice to clients about investing in securities for a fee (rather than a commission). Investment advisers may charge fees based on a percentage of assets under management, on an annual basis, on an hourly basis or on a flat fee basis. Investment advisers may offer personal financial advice to individuals or businesses, or provide asset management for individuals, institutions, mutual funds or hedge funds. An investment adviser generally must be registered either with the SEC (required if the adviser manages assets above $30 million, permitted if the adviser manages assets between $25 and 30 million) or in the state where its principal office is located. Additionally, an investment adviser may also need to register in states in which it maintains a threshold number of clients (generally six clients in any 12 month period).
The difference between an investment adviser and a financial planner is the services provided, though these two categories are hardly distinct and, depending on the services provided, may blend into each other. An investment adviser advises clients on investing in securities. A financial planner evaluates all aspects of a client’s financial needs, including savings, investments, education, insurance, taxes, retirement and estate planning, and then creates a financial plan tailored to the client to meet the client’s financial goals. Financial plans can be provided using various tools, including questionnaires, online services and software. Some financial planners may specialize in one or more areas or recommend a limited range of financial products. Whether you provide services as an investment adviser or a financial planner, or provide discretionary or non-discretionary advice or advice regarding retirement or estate planning, if the advice concerns securities, you would likely fall under the definition of “investment adviser” and need to register with the proper regulatory authority.
The investment adviser business model is used by CPAs looking to provide investment advice for a fee but not sell financial products for a commission. The CPA firm can choose how client money is managed. The firm can select money managers or perform some or all money management itself. The firm and any third-party money managers charge the client fees. The firm contracts with a broker-dealer to provide the “investment platform” to execute trades, provide custodial services, prepare account statements and provide other back office services.
Structure and Implementation
Registration and Compliance