The North American Industry Classification System (NAICS) is a standard system used by federal agencies to classify business establishments into industries for statistical purposes. Investment management companies are typically classified under NAICS code 523120 – Investment Advice and Related Services. This code covers establishments that provide customized investment advice to clients based on the clients’ individual needs and goals. Investment managers evaluate the financial status of clients, analyze their investment objectives and help them develop appropriate investment strategies. Understanding the NAICS classification system provides insights into how investment management firms are categorized and can be useful for research, reporting and regulatory compliance purposes.
NAICS was developed to standardize industry classification across North America
The NAICS system was developed jointly by the U.S., Canada, and Mexico to provide common industry definitions and facilitate the collection, analysis and dissemination of statistical data related to the business economy across North America. It replaced the older Standard Industrial Classification (SIC) system in 1997. The NAICS codes generally group establishments based on their production processes. For the investment management industry, the relevant codes focus on the nature of services provided to clients.
NAICS 523120 covers fee-based investment advisory services
The 523120 code under NAICS covers ‘Investment Advice and Related Services’. This encompasses establishments that provide customized investment advice to clients for a fee. The services include determining the suitability of various investment vehicles for clients, advising clients on market trends and timing, formulating personalized investment strategies and portfolio plans based on a client’s objectives and financial situation, and providing ongoing management of investment portfolios. This category includes financial advisors, wealth managers, investment counselors and investment management firms.
Firms with different business models may have other NAICS codes
While most traditional investment advisory firms fall under NAICS 523120, companies involved in investment management with different underlying business models may be classified under other codes. For example, trusts, estates and agency accounts that manage securities portfolios for others are classified under NAICS 523130. Investment banks involved in underwriting, securities trading and brokerage services are categorized under NAICS 523110. Fund sponsors such as mutual funds, hedge funds and private equity firms that pool securities or assets on behalf of shareholders are classified under NAICS 523140.
NAICS codes help categorize firms for analysis and compliance
NAICS codes allow government agencies, researchers and businesses to analyze and compare companies within a well-defined industry classification system. The codes provide a consistent way to aggregate and assess economic data at the national, regional and local levels based on business activities. For investment management firms, knowing the appropriate NAICS classification is also useful for regulatory reporting purposes, such as SEC filings and compliance with investment adviser rules.
In summary, NAICS code 523120 covers investment advisory services provided by firms to clients for customized investment management and advice, helping categorize such establishments as part of the investment industry for analysis and regulatory purposes.