What Is an Investment Advisor?

What Is an Investment Advisor?

An investment advisor is a type of financial advisor who offers personalized investment guidance. Their ultimate goal is to get their clients the best returns. In some cases, they might make investment decisions and execute trades on their behalf. That means you'll want to do your research to choose an investment advisor who has your best interests at heart (more on this shortly). You can expect an investment advisor to monitor your investment accounts, which can include:

• Retirement accounts
• Brokerage accounts
• Health savings accounts (HSAs)
• Education accounts

What Is a Registered Investment Advisor?

A registered investment advisor (RIA) is a person or company that gets compensated by clients for providing investment advice. To become an RIA, they must:

• Pass the Series 65 exam from the Financial Industry Regulatory Authority (FINRA)
• Register with the U.S. Securities & Exchange Commission (SEC)

Once registered, an RIA is obligated to act as a fiduciary. That requires them to only provide advice that's in their clients' best interests. Registration is usually mandatory, but not always. Advisors who only manage venture capital funds, or private funds that hold less than $150 million in assets, are often exempt.

How Much Does an Investment Advisor Cost?

Fees can vary widely based on an advisor's experience and expertise. The level of support you need is another important factor: You can expect to pay more if you want your investment advisor to manage your accounts for you and make trades on your behalf. Investment advisors typically charge 1% to 2% of the total assets under management (AUM).

Some investment advisors may charge an hourly fee, which could range anywhere from $200 to $400. They can also be dually registered. This allows them to charge flat service fees or hourly advising fees and earn a commission for recommending certain financial products like annuities or mutual funds. This structure could create a conflict of interest, though RIAs are still required to act as fiduciaries.

Is an Investment Advisor Worth It?

Whether an investment advisor is worth it really depends on what you're looking for from a financial advisor. It could make sense if:

• You want help monitoring your investment accounts. For instance, maybe you feel comfortable executing trades, but would love personalized investment advice. The right investment advisor can help you feel more confident in your investment decisions.
• You'd like a professional to manage your investments for you. An investment advisor can do a lot of the heavy lifting for you, from evaluating your accounts to buying and selling securities. That can help ensure that your portfolio continues to support your financial goals and time horizon.
• You want personalized financial advice. Many investment advisors are also certified financial planners (CFPs) who can provide comprehensive financial planning services. That often goes beyond investing and can include advice on retirement planning, estate planning and more.

How to Choose an Investment Advisor

You'll want to choose a credentialed professional who can provide the guidance you need. Consider these tips when comparing investment advisors:

• Verify their credentials. Anyone can call themselves a financial advisor—and request access to your accounts in exchange for payment. To help avoid potential bad actors and scammers, check FINRA's BrokerCheck database, which can show you whether an individual advisor or firm is registered to offer investment advice and sell securities.
• Understand their compensation model. Get clear on how different investment advisors are paid and how much you can expect to spend on their services. Their fees may be worth it if they help strengthen your portfolio and increase your net worth, but only you know what you can afford to spend.
• Ask about their investment philosophy. The right asset allocation for you will depend largely on your risk tolerance and retirement timeline. You'll want an investment advisor who understands your needs and will offer advice that supports your investing goals. For example, if socially responsible investing is important to you, you might go with an advisor who specialties in ESG funds.

The Bottom Line

An investment advisor could be a great addition to your financial team, providing personalized guidance that helps you invest more strategically. If you're looking for more comprehensive financial support, you might opt for a CFP or wealth manager who can take a more holistic view of your finances. Either way, you'll want to do your research and carefully vet financial professionals.