An individual or firm that provides you with advice by making recommendations regarding securities or securities markets is known as an investment advisor. They receive funds in exchange for their advice. Some investment advisors will also manage portfolios of securities.
Examples of securities are:
- Stocks (ownership in a publicly-traded corporation)
- Bonds (creditor relationship with governmental body or corporation)
- Mutual funds (investment program funded by shareholders trading in diversified holdings)
Investment advisors can also help you in understanding the difference between debt securities and equities. An equity is a security in which ownership is held by shareholders in a corporation, such as a stock. With an equity, holders are eligible to profit from capital gains. A debt security represents money borrowed that will have to be repaid. Examples of debt securities are government and corporate bonds, preferred stocks and certificates of deposit (CDs). Typically, holders of debt securities receive only interest and the repayment of the principal.
Investment advisors are not required by state or federal law to have credentials in order to offer advice. Some advisors will have certain certifications, such as a CFA (chartered financial analyst). When choosing an investment advisor, make sure that you ask about their background and their credentials if they have them. You can find more information by visiting the Financial Industry Regulatory Authority at https://www.finra.org/.
