What is an investment advisor?
We explain the definition of an investment advisor, their responsibilities, how they can benefit your investment portfolio, and why you need one.
An investment advisor is a registered professional who provides personalized investment advice and securities analysis.
In 2022, 62.8% of investment professionals listed private individuals as clients. 56% of these clients did not have a high net worth.
Investment advisors may charge commission, flat or hourly rates, advisory fees, or a combination.
The benefits of an investment advisor are numerous, especially for those unfamiliar with investment strategies.
Unbiased can match you with a financial advisor perfectly suited to meet your needs.
What is an investment advisor?
Financial planners, money managers, and investment consultants fall under the regulation of the U.S. Advisors Act of 1940.
According to the Act, an investment advisor is any individual or firm who receives compensation and whose business involves advising others regarding investments or issues securities analyses or reports.
What does an investment advisor do?
These experts focus mainly on the investment side of a client’s wealth management, often leaving additional aspects like taxes and estate planning to other financial professionals.
Investment advisors usually have ongoing relationships with clients rather than merely processing a few transactions on their behalf. When onboarding a new client, the advisor analyzes their financial status and helps them establish the road map to achieve their monetary goals.
They provide the client with an overview of various types of investments and how each could affect their objectives. This includes assessing the risk a client can tolerate and advising them on how aggressively they can afford to be with their investments.
The advisor thoroughly researches investment options, strategies, and market conditions to find the most suitable financial solutions for the client. The next step involves assisting the client with building a diversified investment portfolio, which may include help with investing in stocks, real estate, bonds, funds, and private equity, to name a few.
A crucial part of what investment advisors do includes meticulous recordkeeping. As they have access to sensitive financial data, they must keep detailed records regarding their services, including discretionary authority documents, disclosure agreements, signed contracts, invoices, and payments.
What is their fiduciary duty?
Investment advisors must always put their client’s interests above their own and take care to avoid any conflicts of interest, real or perceived.
All recommendations and advice must benefit the client’s financial needs rather than the advisor’s potential gains.
How much does an investment advisor cost?
When you need financial advice, a significant consideration is what an investment advisor costs.
Financial experts receive payment in various forms:
Hourly or flat rates
A combination of the above
Advisor costs vary according to investment advisor services and the company’s fee structure. They may charge a flat or hourly rate or a percentage of the assets under management (AUM). Depending on the AUM value, investment advisors typically charge 0.59% to 1.18%. The lowest rates usually apply to high-end investments above $10 million.
Some advisors charge flat annual rates scaled according to the AUM, ranging from $7,500 for investments below $500,000 to approximately $55,000 for those over $7.5 million.
Sometimes, an investment advisor may charge an hourly rate for the time spent managing the client’s account. This is often a more affordable option. Hourly rates may range between $120 - $300 depending on the firm’s location and the services provided.
Investment advisors may also create a package deal, grouping specific services for a “one-stop-shop.” Another option is a hybrid payment structure, e.g., an hourly fee in addition to an AUM percentage.
It’s important to discuss these with your advisor before you start working with them so you know exactly what to expect when it comes to payment.
Are investment advisors worth it?
Investment advisors are typically on top of the latest market trends and products and can ensure the best performance on clients’ portfolios.
Hiring an investment advisor can help you better manage your investment portfolio, especially if it is a more complex portfolio involving a substantial amount of money. An investment advisor can also help you gain the knowledge or skills to obtain the best returns on your investments, regardless of your investment amount.
The advantages of hiring an investment advisor include:
Their expertise and knowledge ensure the best solutions for your financial goals.
They tailor your portfolio to your specific needs.
Investment advisors provide ongoing management and support.
Do I need an investment advisor?
You may need an investment advisor if:
You have a high net worth
You’re unfamiliar with investment strategies and products
You’re experiencing significant life changes like marriage, expanding your family, or retirement
Unbiased can match you with an SEC-regulated financial advisor that best suits your needs.
How to find an investment advisor
Choosing a professional to manage your investments is a step you should not take lightly.
Do due diligence and keep the following points in mind to make sure you select a suitable person or firm:
Consider their fiduciary status, ensuring they have your best financial interests at heart.
Understand their compensation structure.
Check the investment advisor’s credentials to make sure they are suitably qualified.
Look for professionals who work on a fee-only basis.
Seek expert investment advice
When you're ready to invest in your future, working with an advisor can be your best decision.
An investment advisor will provide expert advice on developing a portfolio tailored to your needs and goals, which is especially helpful as they have the skill, knowledge, and keep abreast of the latest trends and products.
If you need help with investing or are ready to get expert advice, let Unbiased match you with an advisor to secure your financial future.
Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.