A Registered Investment Advisor (RIA) is a government-regulated professional who actively manages your portfolio


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So, you’ve been looking for a financial professional who can help you invest and manage your money. And you’ve heard a lot about, or often seen, the initials “RIA” — short for Registered Investment Advisor — after certain names. But finance pros seem to bat around a great many monikers. How do you know whether choosing one of the 13,000-plus RIAs in the US is the way to go? And how does a Registered Investment Advisor differ from all those other folks offering financial advice? Here’s what you need to know.

What is a Registered Investment Advisor (RIA)?

Regulated under the Investment Advisers Act of 1940, Registered Investment Advisors (RIAs) are defined as professionals that manage the assets of clients — usually individuals, but sometimes institutional investors, too — and offer investment counsel. So officially they’re firms, not people, though an RIA firm could in fact be a one-person operation. 

The financial professionals who work for RIAs are technically known as investment advisor representatives (IAR). And those firms can employ one IRA or dozens of them. There are more than 451,000 IARs in the US, according to the Investment Adviser Association.

There’s no uniform qualification exam for IARs, but they typically must pass at least one of these financial industry exams: the Series 65, which qualifies individuals to provide investing and general financial advice to clients, the Series 7, which allows individuals to sell securities, or the Series 66, which allows individuals to act as wealth or asset managers. 

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There’s a bewildering array of advisors out there, and admittedly, a lot of overlap between them. Some ways RIAs (and their employees) stand out: 

They are always fiduciaries. As mandated by the Investment Adviser Act, RIAs have a fiduciary obligation to their clients, meaning they must act in the client’s best financial interests — making recommendations that’s most beneficial to you, not what could make the most money for them. That involves making decisions aligned with previously agreed-upon objectives and restrictions, disclosing conflicts of interest, and having a reasonable basis for advice.

While the SEC’s Standards of Conduct package also requires stock brokers to disclose conflicts and act responsibly, “it only pertains to that single transaction at one moment in time,” says Laura Grossman, associate general counsel of the Investment Adviser Association. “If two years from now, the investment is not in a client’s best interest, they don’t have to come back and recommend a change.”

They are compensated by portfolio growth. Although this is changing somewhat, RIAs still mainly make money by charging a percentage of assets under management — not by commissions (like stockbrokers) or fees (like financial planners). So if you don’t prosper, they don’t prosper. 

They mainly manage money. RIAs aren’t interested in every aspect of your (financial) life. Of course, they don’t operate in a vacuum: In devising your portfolio, they ascertain your long-term economic goals, needs, and dreams — retirement plans, kids’ college tuition, etc. — and ask about your risk tolerance and ethical investment …read more

Source:: Businessinsider – Finance


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