Legal Definitions - investment adviser

An investment adviser is an individual or a firm that, for compensation, provides advice to others concerning the value of securities (such as stocks, bonds, or mutual funds) or offers guidance on the advisability of investing in, purchasing, or selling these securities. This advice can be delivered directly to clients, or through various publications and written materials.

It's important to understand that certain individuals and entities are typically *not* classified as investment advisers under this legal definition, even if they might occasionally offer financial insights. These exclusions generally include:

• Employees of an investment adviser firm (the firm itself is the adviser).
• Depository institutions like banks.
• Professionals such as lawyers, accountants, engineers, or teachers, whose investment-related advice is solely incidental to their primary professional practice and not their main service.
• Broker-dealers whose investment advice is an incidental part of their brokerage business and for which they do not receive separate, special compensation.
• Publishers of legitimate newspapers, newsmagazines, or general business and financial publications that have a broad, regular, or paid circulation.

Here are some examples to illustrate the concept of an investment adviser:

• Example 1: Personalized Financial Planning

  Imagine a financial planner named Sarah who manages investment portfolios for individual clients. Sarah charges her clients an annual fee, calculated as a percentage of the total assets she manages for them. She regularly meets with her clients to discuss their financial goals, recommends specific stocks, bonds, and mutual funds, and makes decisions on their behalf to buy or sell these investments. Sarah is acting as an investment adviser because she receives direct compensation (her annual fee) for providing ongoing, personalized advice about securities and investment strategies.

• Example 2: Subscription-Based Investment Research

  Consider "Market Insights Weekly," an online publication that provides detailed analyses of publicly traded companies and offers specific "buy," "sell," or "hold" recommendations for their stocks. Access to "Market Insights Weekly" is exclusively available through a paid monthly subscription. The company behind this publication is an investment adviser because it receives compensation (subscription fees) for issuing reports and providing advice on the value and advisability of investing in specific securities to its subscribers.

• Example 3: Institutional Portfolio Consulting

  A large university endowment hires "Global Asset Strategists," a consulting firm, to review its multi-billion dollar investment portfolio. Global Asset Strategists charges a fixed project fee to analyze the endowment's current asset allocation, evaluate the performance of its various fund managers, and recommend adjustments to its investment strategy, including suggestions for new types of securities or specific investment vehicles. Global Asset Strategists is functioning as an investment adviser because it is paid a fee to advise on the value and advisability of investing in securities for the university's endowment.