What is an RIA?

Registered Investment Advisor Overview

A registered investment advisor (RIA) is a firm that advises clients on securities investments and may manage their investment portfolios. RIAs are registered with either the U.S. Securities and Exchange Commission (SEC) or state securities administrators.

RIAs have fiduciary obligations to their clients, meaning that they have a fundamental duty to always and only provide investment advice that is in their client's best interests.

Registered Investment Advisor Details

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

  • Financial planning

  • Retirement planning

  • Estate planning

  • Wealth management

  • Investment management

  • Budgeting

  • Debt repayment

  • Insurance

RIAs must follow certain practices and procedures when furnishing advice to their clients. These include:

  • SEC Registration: RIAs with over a certain level of assets under management (AUM) are required to register with the SEC, as well as a state governing body depending on the location and the number of clients.

  • Disclosure: RIAs are required to disclose any risks or possible conflicts of interest pertaining to the specific transactions that they recommend to their clients. RIAs must also ensure that the client understands any risks.

  • Assumption of burden of proof: RIAs, if confronted by a client about the suitability of an investment, bear the burden of proof—meaning that the RIA must prove that the risk was disclosed and that the investment could be considered suitable.

  • Fiduciary duty: RIAs are required to act as fiduciaries, meaning they must act in the best interests of clients and avoid any conflict of interest concerning products and services offered to them.

  • FINRA compliance: RIAs are required to meet certain compliance requirements with the Financial Industry Regulatory Authority (FINRA). Besides providing online applications for registering RIAS, the FINRA requires Form ADV to be filed.

  • Documentation: RIAs are required to keep extensive documentation in compliance with SEC record-keeping regulations.

How to Choose an RIA

Always do some careful research before selecting an investment advisor. You need a firm that is aligned with your interests and needs. An excellent source and starting point is the SEC's Investment Adviser Public Disclosure website, which allows you to search for every RIA in the country. Once you select those firms that fit your location requirements, you can review each firm's website and social media. Also,

  • Check the type of services they provide: The type and level of advice RIAs provide can vary widely from firm to firm, so make sure the areas they focus fit your needs.

  • Check their Form ADV: RIAs are required to file Form ADV, which is the uniform form used by investment advisors to register with both the SEC and state securities authorities. The form, which should be offered to you by the firm you are interested in, provides detailed information about the firm, from fees and client types to assets under management and more.

  • Check their assests under management (AUM): Search the total AUM of the firm you are interested in 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.

Who Qualifies as a Registered Investment Advisor?

A registered investment advisor (RIA) is any person or firm that advises clients on investments and manages their portfolios, and it's registered with the U.S. Securities and Exchange Commission (SEC) or a state securities authority.

What Fees Do RIAs Charge?

RIAs can charge fees in several ways. The most common type of fee is the annual management fee, which is based on the value of a client’s assets under management (AUM) with the RIA. RIAs can also charge fees based on performance, asset class, or hours worked.

RIA Conclusion

You don’t need an RIA to invest money. Nonetheless, demand for RIAs is growing, with the assets managed by U.S. RIAs increasing annually by 12% from 2016 through 2021. The consulting firm McKinsey & Co. finds that younger clients are preferring to “consolidate” where they receive their financial services.5

If you decide to work with an RIA, that adviser doesn’t even need to be human. You have a choice of robo-advisors—automated software tools that dispense investment advice based on information about yourself and investment preferences that you provide. The availability of this technology has further lowered the price of working with an RIA.

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Charles E Winchester