INVESTMENT ADVISER

Fiduciary Obligation

- Has a fiduciary responsibility to act in the best interest of the client; to place the interests of the client first

- Does not engage in other business activities such as investment banking or underwriting

Investment adviser is a legal term that appears in the Investment Advisers Act of 1940, the federal law that governs investment advisers. Generally, this law defines an investment adviser as someone who, for pay, is in the business of advising others on investing in stocks, bonds, and other securities.

Investment advisers typically have the authority to make investment decisions on behalf of their clients, including which securities to buy or sell (referred to as “discretionary authority”) consistent with each client’s objectives and guidelines.

Subject to a fiduciary duty. That means they have to put the client’s interests ahead of theirs at all times by providing advice and recommending investments that they view as being the best for the client.Investment advisers are required to adopt and administer a code of ethics and Form ADV disclosure of any conflicts of interest (i.e., custodying assets); provide up-front disclosures about their qualifications, the services they offer, compensation, and whether they have any record of disciplinary actions against them.

They are regulated directly by either the U.S. Securities and Exchange Commission (SEC) or by state securities regulators, depending on the amount of assets they have under management

BROKER OR BROKER-DEALER

Suitability Obligation

- Reasonable Basis Suitability: must believe the recommended security is suitable for any investor

- Customer-Specific Suitability: must believe the recommendation is suitable for that particular investor

The terms broker and broker-dealer are legal terms that refer to people who are in the business of buying and selling securities (called trading) on behalf of customers. Individual salespeople employed by brokerage firms are often called stockbrokers and are officially referred to as registered representatives of the brokerage firm. These include financial consultant, financial adviser, and investment consultant.

In recent years, brokerage firms have increasingly offered a broader range of investment planning services in addition to buying and selling securities.

Not generally considered to have a fiduciary duty to customers, although this standard may apply in certain limited circumstances. Instead, brokers are required: 1) to know the client’s financial situation well enough to understand the client’s financial needs, and 2) to recommend investments that are suitable for the client based on that knowledge. They are not required to provide up-front disclosure of the type provided by investment advisers.

In addition to being regulated directly by the SEC and by state securities regulators, brokers are subject to regulation by industry self-regulatory organizations, including FINRA (NASD and the NYSE, merged).