Investment Advisors

An investment advisor is one who manages the investments of others for a fee, typically calculated as a percentage (e.g., 1%) of assets under management on an annual basis. Investment advisors must be registered under either federal or state law depending on the amount of money under management. Common examples of investment advisors include pension fund managers, mutual fund managers, trust fund managers and also individuals granted discretionary authority by private clients to manage their personal investments.

Stock brokers (known as "registered representatives" under federal law) are not necessarily (and often are not) registered investment advisors. The vast majority of stockbrokers simply take orders for sales and purchases of stocks, bonds and other financial instruments and provide financial advice (and recommend sales and purchases) only as an incidental service to their primary brokerage service -- they usually do not have discretion to manage client investments. Although the lines between the two often blur, the distinction is important.

In general, under U.S. law, investment advisors owe their clients an ongoing fiduciary duty to exercise their discretion in selecting investments with their clients' best interests in mind. Stock brokers on the other hand, typically do not owe a fiduciary duty to clients beyond the proper execution of buy and sell orders.