What is a Registered Investment Advisor (RIA)? – Forbes Advisors

A Registered Investment Advisor (RIA) is an individual financial advisor or firm that provides financial advice to clients. Unlike other types of financial advisors, RIAs have a fiduciary responsibility to act in their clients’ best interests. Here’s what you need to know about RIAs and how to decide if they’re the right kind of financial advisor for you.

Related: Find a financial advisor in 3 minutes

What are RIAs?

RIAs are companies registered with federal or state regulators to provide investment advice. In the financial advice field, registered investment advisers stand out because:

• RIAs have a fiduciary duty to their clientsThis means that we are obligated to always act in the best interests of our customers and provide low-cost products that meet their needs. Non-RIA financial advisors such as broker-dealers may only need to provide advice that is suitable for their clients. may be obtained.
• RIAs register with the Securities and Exchange Commission (SEC) or state securities regulators.SEC and state regulations ensure that RIAs serve your interests as fiduciaries. In addition, FINRA’s BrokerCheck can investigate complaints against them.
• RIAs provide more than just investment advice. RIAs typically advise on a variety of subjects that are part of financial life, from retirement planning to insurance and estate planning.

RIAs come in different sizes. The RIA may be a giant financial planning firm serving tens of thousands of clients, or it may be a single advisor operating through his own RIA. Evelyn Zohlen, president of her Inspired Financial in Huntington Beach, Calif. and chairman of the Financial Planning Association, said:

How much does the RIA cost?

RIAs typically charge clients an annual membership fee equal to a percentage of the assets they manage. The average RIA fee in 2019 was 1.17% of assets under management (AUM). In other words, a client with $100,000 in assets managed by an RIA would pay the company $1,170 annually for its services.

However, other fee types are becoming popular as advisors work with clients in new ways. Perryman’s Certified Financial Planner, Jennifer He Grant, said: Dallas Financial Advisory.

With these new models, you may be able to pay $200 for an hour of consulting, a flat monthly fee, or $1,000 per year for all the advice and guidance you need. An initial consultation (usually free) with an RIA will help you determine what relationship and pricing best suits your needs. Please note that not all RIAs offer different pricing models. You may have to look elsewhere to find an RIA that offers the kind of relationship and fee structure you need.

RIA registers with SEC and state agencies

All RIAs must be registered with a state agency or SEC. Which one to register for depends greatly on the scale. If the RIA manages more than $100 million in regulatory assets, it must generally be registered with the SEC. If it’s less, it’s usually registered with the state securities commission.

There are some exceptions. If your RIA is required to register in 15 or more states, you may choose to register with the SEC instead. RIAs may also register with the SEC if the state does not have laws regulating advisors.

Advisor vs Advisor

In the financial advising industry, you may come across advisor and adviser used interchangeably. It can be confusing, but in the end there is no difference between the two spellings.

“Unfortunately, we know that the SEC uses one and states use another,” Zohlen said. “We use them interchangeably within the financial services industry and within the financial services press.”

One caveat to know: The Investment Advisers Act 1940 uses the spelling “er”, so “Registered Investment Advisor” and “Representative of an Investment Advisor” should be spelled with “er”. I have a feeling. (But not everyone does this.) When evaluating an advisor (or advisors), the key word to look for is “trustee.” The fiduciary cares deeply about your financial interests, regardless of how advisor is spelled.

What is an Investment Advisory Agency (IAR)?

An Investment Adviser (IAR) is a financial professional working under the umbrella of an RIA. Many investors think of RIA as a person, but RIA is the company that IAR works for. So a RIA can use one IAR or hundreds of IARs.

To become an IAR, you must pass the Series 65 exam or pass both the Series 7 and Series 66 exams. In some states, professional certifications such as Certified Financial Planner (CFP) or Certified Financial Analyst (CFA) may be available in lieu of passing the Series 65.

But not all CFPs and CFAs that is IAR — not all IAR that is CFP or CFA. If you need comprehensive financial planning in addition to investment advice, look to IAR, who is also a CFP. “If I were to tell my mom or my sister what I was looking for, I would want both,” says Zoren.

Why Fiduciary Duty Matters

Fiduciary duty is important. Because the person in charge of your money ensures that they are making the best choice for you when it comes to products and fees as well. As a fiduciary, RIA has a legal obligation to put your interests first and to disclose any potential conflicts of interest.

said Michael Baughman, CFP at Parsec Financial in Tryon, North Carolina. These advisors are not required to disclose potential conflicts of interest or inform their clients of cheaper, tax-effective alternatives. ”

This is a common source of confusion. Regardless of whether an advisor adheres to fiduciary or suitability standards, they can call themselves Financial Her Advisors. Only advisors who are IARs and work for RIAs have fiduciary duties.

“When I was at a large brokerage firm, that firm offered a unique product and had its own sales targets, and conflicts continued to escalate,” said CFP at Left Brain Wealth Management in Naperville, Illinois. Freddy Garcia says Before leaving and joining a small independent RIA.

In other words, when you visit an RIA, you can be sure that its representatives are recommending the best investments for you. “The difference between going to a roadside broker and going looking for an RIA is that the RIA has to put the consumer’s best interests completely first,” he said. increase.

Related: Find a financial advisor in 3 minutes

Are RIAs only for the rich?

People of all economic backgrounds can benefit from RIAs. Registered investment advisors are equipped to help people at various life stages, including novice investors who may not have accumulated much yet.

“Traditionally RIAs have focused on high net worth individuals, but there is a new movement focused on providing guidance even when clients have not accumulated wealth. Beyond asset-based percentages, some RIAs offer more ad-hoc relationships using the pricing model outlined above.These are just beginning their financial journey and are still financial advice. help those in need.

Some financial planning associations, such as the XY Planning Network, specialize in providing access to advisors using a low-cost subscription model. Those looking for low-cost financial advice can also consider robo-advisors, which offer investment advice at a much lower fee than traditional her RIAs that employ investment advisor representatives.

Need a RIA or Robo-Advisor?

If your financial situation is not complicated and you are looking for investment recommendations based on a wide range of circumstances, a robo-advisor may be for you.

A robo-advisor is a financial advisory service, typically offered online or via an app, that provides automated investment recommendations based on goals, risk tolerance, investment timelines, etc. While some platforms have access to live humans, robo-advisors primarily use algorithms to come up with targeted advice. Notably, most robo-advisors are also her RIAs.

Robo-advisors typically cost less than other RIAs. For example, robo-advisors Betterment and Wealthfront manage portfolios with an annual fee of her 0.25% of assets. For a $100,000 balance, that’s more than $700 a year less than the cost of his traditional RIA. However, be aware that you may not get the highly personalized advice an investment advisor representative can provide.

RIA offers more customized advice and services

said Brenda Knox, CFP and founder of Financial Elements in Rolling Meadows, Illinois. Specific to your overall housing situation. They probably won’t take the time to ask you about your long-term goals for that space and how you’re currently using it or how everything fits together. ”

With a fee-only IAR, they’ll get to know you and organize every part of your financial life. This usually comes with a higher fee, but many people find it worth paying to receive that level of service.

“Robo-advisors are a great solution for people who are confident in their decisions and are looking for a solution to handle transactions and keep things in balance,” says Zohlen. “For individuals who need more support, people who can discuss ideas or consult you if something really dramatic happens in the market, robo-advisors are often not in a position to do that. do it.