Investment Advice

Posted in Markets Compliance on May 21, 2024
Investment Advice

Investment advice. The foundation of the securities industry is fair dealing with clients and providing fair investment advice. Whether a broker works with individuals, institutions, or business entities, the obligation is to serve the customers with honesty, and integrity by putting their interests first. Brokers are obligated to advise or disclose material information about investments to potential investors.

Investment Advice

Investment Advice

Misrepresenting material information in discussions, and distributing materials are prohibited. Additionally, brokers and investment companies are prohibited from guaranteeing that a securities transaction will generate benefits and money will not be lost. 

The brokers are required to provide the basic information package with the clients that may include audited financial statements, a summary of selected financial data, and management’s description of the company’s business and financial projections or plans. A primary goal is the disclosure of important financial information about the securities and enabling investors, to make informed decisions about whether to invest in a particular security or not.

Regulators require that the information to be provided must be accurate, and reliable, however, the broker may not be able to give a guarantee about the correctness of the information. The publicly available information that is available from reliable sources, must be used to educate the investors about the investments.

What Is Investment Advice?

Any recommendation or guidance that attempts to educate, inform, or guide an investor regarding a specific investment product or series of products is considered investment advice.

Investment advice can be professional (the investor pays a fee in exchange for the qualified professional’s guidance and expertise, as seen with financial planners) or amateur (as seen with specific internet blogs, chat rooms, or even conversations). While it is usually legal to provide stock advice or pass along investment information, it may not be legal if you provide inside information.

The SEC Act

Making excessive claims about the securities, and shares, without any reasonable justification is strictly prohibited. The SEC Act requires the disclosure of important information by anyone seeking to acquire more than 5 percent of the company’s securities by direct purchase or tender offer. There are restrictions on calling investors and telemarketing, to provide random investment advice or sales.

It is generally prohibited to make “cold calling” to prospective customers before the specified timing range as per local regulatory requirements. It is also discouraged to call individuals for investment advice, who previously stated that they do not want to receive calls related to pitching the securities or investment plans. 


As per the FINRA rules, it is permitted for the members to place temporary holds on disbursements of securities from the accounts of specified customers when there is a reasonable belief of financial exploitation of these customers. Additionally, it is required that members make reasonable efforts to obtain the name of, and contact information of a trusted contact person for a customer’s account.

Brokers including security dealers must understand the restrictions against disclosing non-public personal information about a client or the customer. It is required to alert the company representative immediately if it is believed that the client’s information may have been lost or stolen, or if it is suspected that the customer accounts may be subject to the intrusion.

Investment Advice

How Investment Advice Works

Any recommendations regarding an investor’s portfolio are referred to as investment advice. Many professionals, such as financial planners, bankers, and brokers, can offer investors investment advice tailored to their specific financial situation and short- and long-term financial objectives.

Due to the vast amount of investment advice available, particularly online, an investor may wish to ascertain the person dispensing the advice’s qualifications before making any investments. Entities that provide information about financial markets or specific assets for reference purposes may make an effort to clarify that they are not providing investment advice.

Limitations Of Offering Investment Advice

Given the influence and potential ramifications of investment advice, professionals who may be in a position to provide such advice are frequently cautioned about the impact they may have. Specific requirements must usually be followed when offering investment advice, whether it is provided by a bank or an independent financial advisor. This can include gathering enough information about the client’s financial situation and requirements.

There may be requirements for understanding the nature of the investment advice being offered and its relation to the client. Those who offer investment advice might also need to prove that there is no conflict of interest in the guidance they present. This can be particularly crucial if there is a sudden downturn in an industry, market, trading asset that an advisor recommended investors to put their funding towards. If the source of investment advice does not fulfill such duties, they may be held responsible for certain damages the investor sustained based on their guidance.

Special Considerations

Other types of professionals, such as estate-planning attorneys, may be held liable under the Employee Retirement Income Security Act (ERISA) fiduciary requirements if they offer guidance that could be construed as investment advice.

Individuals may be considered fiduciaries under ERISA if they provide investment advice for a fee or other compensation, whether direct or indirect. This includes advice on 401(k) and other employer-sponsored benefit programs.

Final Thoughts

Investment advice is exactly as it sounds. It means to make recommendations or provide guidance in order to inform, guide, or educate someone about a specific investment product or series of products. Depending on who is giving the advice, investment advice can be professional or amateur. Financial planners, bankers, and brokers can frequently offer investment advice for both short- and long-term financial objectives. Before making any suggested investments, always ask for a financial advisor’s credentials.