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Financial Professionals: What is an Investment Adviser?

[This post is the second in a series of three that discusses the role of stockbrokers, investment advisors and financial planners.]

What is a stockbroker?The world of finance and investing can be quite complex, and many people often seek the expertise of a professional to assist them in making those important decisions. Now, we enter the world of “financial professionals—stockbrokers, investment advisors, and financial planners. Because of the range of services that can be provided by these different individuals, it can be confusing to know who to seek for advice. Below, I will help explain the different role each player takes in the financial world, and help you find the right professional.

Investment Advisors

Investment advisors representatives (IARs) are individuals or companies that provide clients with advice about securities. The different types of IARs include asset managers, investment managers, and portfolio managers. It is important to note that they are not the same as financial advisors. Investment advisors can be compensated in a myriad of ways—hourly fees, a fixed fee, commission on the products they sell if they are also a broker-dealer, a percentage of the assets under management (AUM), or a combination of the aforementioned.

IARs must be registered with the SEC or with the state securities regulator—depending on the value of the AUM under the advisor (greater than $100MM is SEC, below is with state). They are also required to pass the Series 65 exam, or a conjunction of the Series 7 and 66.

IARs have both a suitability requirement and a fiduciary duty. This means they must not only recommend products and securities that are appropriate for the client, but they also must act in the best interest of the client, despite the difference in compensation they may receive.

Our next blog post will be about Financial Planners.


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