The Security Exchange Commission (SEC) has stipulated some very specific definitions around who can be considered an investment adviser. There are approximately 11,500
investment advisers registered at the federal level, managing approximately 66 trillion dollars. This was done to help regulate and prevent abuses in the securities field. These specific standards come
under the U.S. Investment Advisers Act of 1940 (the “Advisers Act”) One of the central elements of the regulatory program is the requirement that
a person or firm meeting the definition of "investment adviser" under the Advisers Act, must register with the Commission, unless exempt or prohibited from registration.
Simply put, an investment adviser is a professional that is engaged in the business of providing advice, issuing reports and/or analysis regarding securities, according to the SEC. An investment adviser could be an employee of an investment firm as well as consultant, business owner or any other person who dispenses financial advice regarding securities (and is thus compensated).
The SEC is very specific in that the definition includes that investment advisers must be engaged -- either in their primary or secondary role -- in securities specifically. The SEC says that those engaged in dispensing advice about real estate for example, are not in fact investment advisers under their definition.
Below are the criteria that SEC has outlined for one to be considered an investment adviser.
- Compensation –The first criteria for being considered an investment adviser is that a person must be compensated for dispensing securities advice. That can be a salary, a commission, a consulting fee and more.
- Engaged in the business – The SEC says that an individual must be “engaged in the business” of offering financial advice in ordered to be an investment adviser. Interestingly, the SEC says this role does not have to be the person’s primary role or job, but still must adhere to the following:
- …Does the individual hold/label him/herself out as an investment adviser;
- …Does they receive compensation that represents a clearly definable charge for providing investment advice;
- …the frequency and specificity of the investment advice provided.
- Advising Others – The SEC also states that an investment adviser must specifically dispense advice about securities. The SEC is very clear on this matter and defines the following principles:
- …advice about market trends is advice about securities;
- …advice about the “selection and retention of other advisers
- advice about the advantages of investing in security verses other types of investments such as coins or real estate.
Although many investment advisers specialize in traditional investments like stocks, bonds, mutual funds, ETFs, etc., some investment advisers recommend allocations to gold and silver and even
Bitcoin! “You do not necessarily need an investment adviser in order to invest in commodities, such as precious metals,” explains Anthony Allen Anderson, VP of Sales and Marketing at GSI Exchange, a leading national coin and precious metals company specializing in wholesale trading, establishment of a
gold IRA or silver IRA for individual investors, as well as direct sales to the general public, “it is often more cost effective to buy direct from a precious metals dealer or wholesaler, rather than pay an advisory fee on top of the assets you own.”
Author Bio:
V. David Ben Melech is a former securities attorney and has over 15 years of experience providing a wide range of legal and strategic advisory services to Fortune 500 companies and financial institutions on a broad variety of regulatory, enforcement, compliance, risk management and transactional matters.