investment adviser
An investment adviser is any person or firm that, for compensation, engages in the business of providing advice to others about the value of securities, or the advisability of buying or selling securities. This advice may be offered directly to clients or through written and other published materials. Additionally, an investment adviser is an individual who, as part of a regular business, offers analyses or reports about securities. Investment advisers may also manage investment portfolios on behalf of clients.
However, the law excludes certain individuals and entities from the definition of an investment adviser. U.S. banks and bank holding companies are generally not considered investment advisers unless they act as advisers to registered investment companies, such as mutual funds. Conversely, non-U.S. banks are generally ineligible for this exception. Lawyers, accountants, engineers, and teachers are also not considered investment advisers, but only if their advice about securities is incidental to their primary profession. Brokers and dealers are also excluded if their advice is incidental to their brokerage activities and they receive no special compensation for the advice. Publishers of bona fide newspapers, magazines, or financial publications of general and regular circulation are excluded so long as their content is not tailored to specific investment needs. Those providing advice solely about certain government-guaranteed or exempt securities, such as U.S. Treasury bonds, are not considered investment advisers either. Statistical rating organizations, such as credit rating agencies, are excluded unless they issue recommendations about securities or manage securities-based assets. Private advisory entities, known as family offices, which manage the wealth of a single family, are also excluded. The SEC retains the authority to exempt other entities through rules or orders.
Investment advisers are typically required to register with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940, unless they qualify for specific exemptions. Registered investment advisers owe a fiduciary duty to their clients, requiring them to act in the clients’ best interests, disclose conflicts of interest, and maintain transparency regarding fees and services. Additionally, investment advisers have a duty to monitor client accounts, the extent of which depends on the terms and scope of each client relationship. These regulatory requirements are designed to protect investors and ensure advisers operate with integrity.
For more information, see: Regulation of Investment Advisers, FINRA -Â Working with Investment Professionals and 15 U.S. Code Subchapter II - Investment Advisers
[Written in December of 2024 by the Cornell Law School Securities Law Clinic]
Wex