Advisor – Investment Companies

What Is an Advisor?

An advisor is a person or company that advises investors on financial, legal, and tax matters. Advisors assist clients in determining their risk tolerance, creating an asset allocation plan for their needs, executing their investment strategies, and monitoring investment performance.

There are two different types of investment advisors- registered investment advisors and IACs. Both types of advisors provide portfolio management services and increase the chances that an investor will accomplish their money goals.

Understanding Advisors

Advisors help clients plan their financial future. The first thing investors should know about advisors is that they are held to a fiduciary standard of care. This means that advisors must always act in their clients’ best interest.

Registered investment advisors and investment advisory companies help clients develop and follow a comprehensive financial strategy and plan, and in most cases they also help clients achieve their life goals.

Registered Investment Advisors

Registered investment advisors help people make long-term financial plans and provide advice on setting up a portfolio. They can advise you on everything from financial products to taxes. These advisors act as stewards of their client’s assets, buying and selling securities on their behalf following the investors’ statements of risk tolerance, timelines for investing goals, income needs, etc.

Registered investment advisors help people with high incomes, large asset holdings, and complex financial interests manage their money. They typically charge a flat fee every year. Mutual fund managers work for a firm that invests in stocks and bonds. Registered investment advisors provide financial advice and management services for individual investors.

Registered investment advisors come in 2 forms—broker-dealers and registered investment advisors. Broker-dealers are regulated by the FINRA that means they must only adhere to the suitability standard.

Registered investment advisors provide comprehensive services, as outlined in the 1940 Investment Advisors Act. The U.S. Securities and Exchange Commission and state laws regulates these, and they fall under a fiduciary standard of care.

When it comes to investing in a registered investment advisor, or RIA, an individual will typically choose to work with either an RIA or a broker-dealer representative based on their individual needs. 

RIAs help clients in long-term financial planning, holistic asset management, individual securities trading, and more.

Full-service financial advisors can help you more comprehensively plan your finances. Conventional financial services typically charge fees based on a percentage of assets. However, these firms can choose whichever products they find the most profitable for their proprietary investment funds.

A broker-dealer representative can focus on trading securities for the client but only if the client directs that action. The broker-dealer representative may have slightly broader access to securities than a standard discount brokerage platform.

The broker-dealer representative’s salespeople are paid on commission. They must recommend or offer suitable products, but they are not subject to the stricter fiduciary standard.

Investment Companies

Investment companies are also called management investment companies, and they’re responsible for directing the investments of the funds they manage. They include mutual funds, closed-end funds, and unit investment trusts, which must all adhere to strict rules as stated by the U.S. Securities and Exchange Commission. Investment companies are a type of investment company that seeks to profit investors by investing in securities.

The fund manager is responsible for how well the fund manages its assets.Typical responsibilities include selecting securities, implementing trading strategies, and monitoring risk levels. Many advisors receive an annual management fee, which is computed as a percentage of a fund’s assets under management. The mutual fund expense ratio is the annual fee that the fund charges its investors for its services.

A fund’s expense ratio is a quantifiable way of measuring how much you pay for fund management, and so it can be an important consideration when choosing a fund.