Table of Contents

What Is an RIA?
Understanding RIAs
澳洲幸运5官方开奖结果体彩网:Duties
Responsibilities
Registering as an RIA
RIAs vs Broker-Dealers
How RIAs Make Money
Choosing an RIA
澳洲幸运5官方开奖结果体彩网:FAQs
The Bottom Line

Registered Investment Advisor (RIA): Definition, Duties, and Responsibilities

By

澳洲幸运5官方开奖结果体彩网:Adam Hayes

Updated July 07, 2024

Reviewed by

Marguerita Cheng

Fact checked by

Ryan Eichler

Part of the Series

Guide to Hiring a Financial Advisor

Financial Advisor: How to Choose the🍨 Right One for You

Basics of Working with a Financial Advisor

Terms To Know

The Right Advisor for You

The Investopedia 100

Working with a Financial Advisor

Definition

A registered investment advisor (RIA) is a financial professional or firm that advises clients on securities investments🍎 and may manage t𝓡heir investment portfolios.

What Is a Registered Investment Advisor (RIA)?

A registered investment advisor (RIA) is a financial professional firm that advises clients on securities investments and may manage their 澳洲幸运5官方开奖结果体彩网:financial portfolios. RIAs are registered with either the 澳洲幸运5官方开奖结果体彩网:Securities and𒐪 Exchange Comm🐽ission (SEC) or state securities administrators. RIAs have fiduciary obligations to their clients, which means they have a fundamental duty to always and only provide investment advice that is in the best interests of their clients.

Key Takeaways

Registered investment advisors are financial firms that manage the assets of individual and institutional investors.
RIAs must register with the U.S. Securities and Exchange Commission or a state regulatory agency, depending on the value of assets under the RIA’s management.
RIAs typically earn their income through management fees, calculated as a percentage of a client’s assets under management by the RIA.
Unlike broker-dealers, RIAs have a fiduciary duty to put the best interests of the client first.
Investment advisor representatives are the financial professionals who work for RIAs.

Understanding Registered Inv🅰estment Advisors (RIAs)

As noted above, a registered investment advisor is a financial professional or financial services company that offers clients investment advice for a fee. They are governed by financial ethics that compel them to act responไsibly and in thౠe best interests of their clients.

The rules on investment advisors were formulated by the Investment Advisers Act of 1940. This law requires individuals or businesses that dispense professional investment advice to register with the SEC, although there are exemptions for smaller firms. Advisors might also be considered 澳洲幸运5官方开奖结果体彩网:qualified p💜rofessღional asset managers (QPAMs).

Investment advisors who manage a minimum of $25 million in assets are permitted, although not required, to register with the SEC. It becomes mandatory for firms that manage $100 million or more, as RIAs managing at least that amount are required quarterly to reveal holdings to the SEC. Inv✱estment advisors who manage smaller sums of investment money are typically required to register with state securities authorities.

Duties of Registered Investment Advisors (RIAs)

RIAs provide more services than just investment advice. Their services and🐓 advice🐻 may cover the following:

Responsibilities of Registered Investment𒀰 Advisors (RIAs)

RIAs must follow♛ certain practices and procedures wh𒆙en furnishing advice to their clients. The table below highlights these responsibilities.

SEC Registration	RIAs with more than a certain level of AUM are required to register with the SEC, as well as a state governing body depending on the locat൲ion and the number of clients.
Disclosure	RIAs are required to disclose any risks or possible 澳洲幸运5官方开奖结果体彩网:conflicts of interest regarding the specific transactions that they recommend to their clients and ensure that the client understands any risks.
Assuming the Burden of Proof	If a client confronts an RIA about an investment, the RIA bears the burden of proof—meaning that the RIA must prove that the risk was disclosed and that the investment could be considered in the client's best interest.
Fiduciary Duty	RIAs must act as 澳洲幸运5官方开奖结果体彩网:fiduciaries, meaning that they must act in clients' best interests and avoid any conflict of interest concerning products and services offered to them.
FINRA Compliance	RIAs must meet certain compliance requirements with the SEC and the 澳洲幸运5官方开奖结果体🎀彩网:Financial Industry Regulatory Authority (FINRA). In addition to providing online applications for RIA registration, the SEC requires Form ADV to be filed.
Documentation	RIAs must maintain extensive documentation in compliance with SEC record-keeping regulations.

How to 𓆏Regis🌃ter As a Registered Investment Advisor (RIA)

Registering as an RIA does not imply any recommendation or endorsement by the SEC or any other 澳洲幸运5官方开奖结果体彩网:regulator. It means only that the investmen♊t advisor has fulfilled all that agency’s requirements for registration. Registering with the SEC requires disclosing information that includes the following:

澳洲幸运5官方开奖结果体彩网:Investment style of the advisor
澳洲幸运5官方开奖结果体彩网:Assets under management (AUM)
Their fee structure
Any disciplinary actions that were taken against the advisor
Any current or potential conflicts of interest
Key officers, if the RIA is a company

RIAs must update♔ the🎐ir information annually on file with the SEC, and the information must be made available to the public.

RIA vs. IAR

An RIA is a company that offers financial guidance to clients. An 澳洲幸运5官ꩵ方开奖结果体彩网:i♐nvestment advisor representative (IAR) is a person💦 who gives financial advice. The RIA can have many employees, including several IARs, or it can be just one person who is both the RIA and the ♒IAR. The IAR thus works for the RIA and provides the actual financial services to the clients.

Registered Invest🧸ment Advisors (RI🤪As) vs. Broker-Dealers

RIAs differ from 澳洲幸运5官方开奖结果体彩网:broker-dealers in essential ways. RIAs advise on all finance-related matters, including investments, taxation𓃲, and estate planning. Broker-dealers tend to focus more narrowly on facilitating purchases and sales of assets like stocks.

RIAs are expected to act in a fiduciary capacity when they interact with their clients. Broker-dealers, on the other hand, are only required to satisfy the suitability standard. Clients of RIAs can be assured that their advisors always and unconditionally put their best interests first. Clients of broker-dealers need to be aware that the broker-dealer is permitted to dispense advice that is merely suitable for their client’s investment portfolios.

Important

Unlike RIAs, broker-dealers are not required to disclose potential con🎀flicts of interest or inform their clients about less expensive or more tax-efficient investment alternatives.

How Registered Investment Advi💮sors (R🎐IAs) Make Money

The following are some common fee structures for investment advisory firms:

Management Fees: An RIA can collect a management fee annually as a percentage of the RIA’s AUM. 澳洲幸运5官方开奖结果体彩网:Management fees can align incentives, as an RIA who can raise the value of a client’s portfolio can collect a higher management fee. This is how most RIAs earn their income.
Performance-Based Fees: An RIA can assess a fee based strictly on the performance of a portfolio. Not all clients are eligible for this type of fee structure, though, only those with at least $1.1 million in assets managed by the RIA or $2.2 million in net worth generally qualify.
Asset Class-Based Fees: Some RIAs who charge management fees vary the percentage rates based on the 澳洲幸运5官方开奖结果体彩网:asset class. An RIA might charge a management fee of 1.5% for equities like stocks and a 0.75% management fee for fixed-income investments such as bonds.
Hourly or Flat Fees: RIAs increasingly provide fee-based services not contingent upon the client's investment amount. Investors can work with RIAs that charge fees hourly or flat rates, with some RIAs offering subscription-based services.

How to Choose a R✤egistered Investment Advisor (RIA)

Always do some careful research before selecting an investment advisor. You need a firm that is aligned with your interests and n🥂eeds. An excellent source and starting point is the , which allows you to search for every RIA in the coun🤪try.

When choosing an RIA, you hire the financial firm you will be working with—not necessarily an individual advisor (unless that's how they operate). Investment advisor representatives are the individuals who work for the RIA and directly provide advice to clients. An RIA may have just a single advisor or several IARs, each with its own areas of expertise and approach to investing.

Therefore, when selecting an RIA, you're not just choosing a firm but potentially also among the individual IARs within that firm. Ensure that you understand the RIA's philosophy and standards and the specific skills and qualifications of the IAR who may be handling your portfolio.

Once you select those firms that fit your location requirements, you can review each firm’s website and 澳洲幸运5官方开奖结果体彩网:social media for information on the types of services offered, the registration, the representatives, and ▨the total amount of money managed by the RIA.

Offered Services

The type and level of advice that RIAs provide can vary widely from firm to firm, so make sure the areas on which they focus fit your needs. This means that you shouldn't

SEC Form ADV

RIA firms are required to file 澳洲幸运5官方开奖结果体彩网:SEC Form ADV, which is the uniform form used by investment advisors to register with both the SEC and state securities authorities. The form, which s♐hould be offered to you by the firm in which you are interested, provides detailed information about the firm, from fees and client types to assets under management and more.

Investment Advisor Representatives

To ꦰcheck the record of an advisor, you have two major sources for information:

The IAPD website, managed by the SEC, provides comprehensive information about investment advisor firms and their representatives, including employment history and disciplinary actions
FINRA's BrokerCheck, which is primarily used for broker-dealers and registered representatives, also offers details on IARs who are dually registered as brokers
State securities regulators, accessible through the North American Securities Administrators Associaꦇtion🧜 (NASAA) website, can provide local regulatory information

Assets Under Management (AUM)

Search the total AUM of the firm in which you are interested by using the SEC’s Investment Adviser Public Disclosure website and compare them with yours to see if your assets are on the low or high side for the firm. You can find this information directly on the company's website, its financial disclosure forms, or its 澳洲幸运5官方开奖结果体彩网:annual report.

What Are the Benefits of Working With an Registered Investment Advisor?

First, RIAs are legally obligated to act in your bestꦇ interest. They also tend to provide

more personalized services. Since they aren't paid on commission, they don't have an incentive simply to deal with only when selling something. RIAs typically have transparent fee structures, often charging a percentage of assets under management or a flat fee, which aligns their interests with yours. Finally, most RIAs offer a broad range of financial planning services that address a wide range of needs.

How Do You Register as a Registered Investment Advisor?

A firm can register as an RIA by filing Form ADV with the SEC. Within 45 days of the filing, the SEC must either grant registration or begin proceedings to deny it. In addition, RIAs are also required to abide by the “brochure rule,” which requires them to inform clients with information about their practice, educational, and business backgrounds. RIAs must also maintain accurate books and records, subject to examination by the SEC.

Which Regulators Must an Registered Investment Advisor?

RIAs may register with the SEC if they manage at least $25 million in assets, and are required to do so if they manage more than $100 million. Investment advisers managing smaller amounts of money are typically required to register with state-level agencies.

The Bottom Line

Demand for RIAs is growing, with the expectation that about a third of the market will be managed by RIAs by 2027. Although you don't need to work with one, if you decide to hire an RIA, that advisor doesn’t even need to be human. You have a choice of 澳洲幸运5官方开奖结果体彩网:robo-advisors—automated software tools that dispense investment advice based on information about yourself and the investment preferences that you provide. The availability of this technology has further lowered the price of working with an RIA.

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