Investment advisor

An investment advisor is a person or firm paid to give securities advice or manage portfolios for clients. In the United States, the role is defined by the Investment Advisers Act of 1940 and the term carries a legal fiduciary duty to put each client’s interests ahead of the advisor’s own compensation.

The U.S. Securities and Exchange Commission defines an investment advisor as anyone who, for compensation, advises others on the value of securities or the wisdom of investing in them. Firms that meet this test must register either with the SEC or with a state regulator, depending on the assets they manage, and they are then called Registered Investment Advisers, or RIAs. Reference: Investor.gov

That status matters because RIAs are held to a fiduciary standard, which is stricter than the older suitability rule that historically applied to brokers.

The fiduciary standard requires advisors to recommend what serves clients best, disclose conflicts of interest, and charge fair prices. Brokers historically could recommend any “suitable” product, though the SEC narrowed this gap with Regulation Best Interest in 2020.

In everyday speech, “investment advisor” and “financial advisor” are often used interchangeably, but the regulatory meaning is narrower. Only advisors registered under the 1940 Act, or under a state equivalent, can lawfully hold themselves out as investment advisors in the U.S.

How it works

An RIA earns fees in one of three main ways: a percentage of assets under management, a flat or hourly planning fee, or a performance fee tied to returns. Most firms still charge an AUM fee, with the industry median sitting near 1.0% on the first million dollars, according to the 2024 Kitces Report. Larger accounts negotiate lower tiers — the same survey put the median fee near 0.85% above $1 million and 0.50% above $5 million.

Firms that manage at least $110 million in regulatory assets must register federally with the SEC; smaller firms register with their state securities regulator. Both routes require filing Form ADV, which discloses the firm’s services, fees, disciplinary history, and conflicts. The latest SEC industry snapshot reported that registered advisors served tens of millions of clients and managed well above $100 trillion in regulatory assets — a figure that has roughly doubled over the past decade.

Advisor type comparison table:

Day to day, an advisor profiles the client’s goals — risk tolerance, time horizon, tax situation — then proposes an asset allocation across equities, fixed income, cash, and sometimes alternatives. The advisor rebalances the portfolio, harvests tax losses where useful, and reports performance against an agreed benchmark. Investors should verify any advisor through FINRA’s BrokerCheck before signing a contract.

Examples

Vanguard Personal Advisor, launched in 2015, is one of the largest RIAs in the United States and bundles a fiduciary human advisor with low-cost index funds for around 0.30% of assets. It illustrates how the AUM model has compressed since the rise of passive investing.

Fisher Investments, founded by Ken Fisher in 1979, is an independent RIA managing roughly $275 billion for private clients and institutions as of 2024. It markets itself heavily on the fiduciary distinction versus commission-based brokers.

Betterment and Wealthfront are SEC-registered robo-advisors. Both run algorithmic portfolios at fees near 0.25% of AUM, and both gained scale by serving clients that traditional advisors found too small to take on.

Outside the U.S., the U.K. equivalent is an FCA-authorised “investment adviser,” and in Singapore the Monetary Authority of Singapore licenses Financial Advisers under the Financial Advisers Act. The fiduciary concept is similar; the registration bodies and exams differ.

Related terms

• Asset allocation: the portfolio split across stocks, bonds, and cash that every advisor builds first.
• Dividend: a recurring cash payment from a stock that advisors often use for income clients.
• Bond: the fixed-income instrument that anchors most advised portfolios.
• Interest rate: the macro variable advisors track most closely when rebalancing.
• Growth investing: a style focused on companies with above-average earnings growth.
• Value investing: a style focused on securities priced below intrinsic value.
• Sustainable investing: an advisor specialty that screens portfolios on ESG criteria.

FAQ

Is an investment advisor the same as a financial advisor?

Not quite. “Investment advisor” is the narrower legal term defined by the 1940 Act and refers to someone registered with the SEC or a state. “Financial advisor” is a broader marketing label that can include brokers, insurance agents, and planners who may or may not be RIAs.

Do investment advisors have a fiduciary duty?

Yes. Registered Investment Advisers are bound by a fiduciary standard under the Investment Advisers Act of 1940, which requires them to act in the client’s best interest and to disclose conflicts of interest in writing.

How much does an investment advisor cost?

Most U.S. advisors charge between 0.25% and 1.5% of assets under management each year, with the rate falling as the account grows. Flat-fee, hourly, and subscription pricing are increasingly common for clients who prefer not to pay on assets.

How do I check if an advisor is legitimate?

Search the firm or individual on the SEC’s Investment Adviser Public Disclosure site and on FINRA BrokerCheck. Both records show registrations, exams passed, and any disciplinary actions, and both are free to use.

What exams does an investment advisor take?

The Series 65 exam is the standard qualification to act as an investment advisor representative in the United States. Holders of the CFA charter or the CFP certification are often exempt from Series 65 in many states.

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