How to register as an RIA 

Working as a Registered Investment Adviser (RIA) can be an exciting and fulfilling career choice. This is one of the few jobs where you work closely with high-net worth clients and provide valuable financial advice. Some financial professionals consider shifting to an RIA role as a significant milestone. It’s a rare opportunity to offer personalized investment advice and build a reputable practice that is distinctly theirs.   

Apart from getting the required licenses and qualifications, the biggest stumbling block to an RIA’s career is the registration process. This can be full of complexities to navigate; it’s also very time-consuming. By following the steps and understanding key aspects of the process, aspiring finance professionals and seasoned advisers can successfully register as an RIA.  

Introduction to RIA registration 

In the US, Registered Investment Advisers are registered with either the federal government (meaning the Securities and Exchange Commission) or one or more of their state’s securities agencies. What is the difference then, between registering with the SEC or with a state securities regulatory agency?  

RIAs registered with the SEC are guided by the Investment Advisers Act of 1940. RIAs registered with state securities agencies, on the other hand, are subject to their state’s set of rules and regulations on securities.  

RIAs can have a wide set of rules depending on whether they are federally regulated or state-regulated, and in which state they are registered.  

Why is RIA registration important? 

Registration can be crucial for advisers who want to get more business. Clients are aware that RIAs are held to the fiduciary standard. As an RIA, it’s possible to attract clients with a high net worth.  

Most investment and securities fraud in the US are committed by unlicensed and unregistered persons. There are also entities that are repeat offenders that don’t practice self-regulation.  

Should you choose RIA registration, clients will feel more reassured and entrust their assets to you, knowing that you are legally bound to act in their best interests.  

Benefits for Investors/Clients	Benefits for Advisers
Higher standard of service	Registration means more credibility
Fiduciary duty protects their interests	Respected certification
Can get advice related to investments	Guaranteed compensation
Extra services like tax planning	High Income; fees are % of AUM
More protection from fraud	Can attract high-net-worth clients

What is the difference between an RIA and an IAR? 

There may be some confusion between a Registered Investment Adviser (RIA) and an Investment Adviser Representative (IAR).  

An RIA is typically a company or firm that provides financial services (like investment advice) to clients. Meanwhile, the IAR is the person who gives financial advice. An RIA can employ many IARs, or the RIA can be the lone individual who is both the RIA and its IAR.  

Registered Investment Adviser (RIA)	Investment Adviser Representative
Usually, a legal entity but can also be an individual	Is an individual
Employs IARs	Employed by RIAs

Read more: What is the difference between an RIA and a broker-dealer?

Where to register: SEC or state securities regulator? 

The general rule is that investment advisers register according to the amount of Regulatory Assets Under Management (RAUM) that they handle. The RAUM, as opposed to AUM (Assets Under Management), is a new metric introduced in 2012 by the SEC. This is a vital part of Form ADV and helps determine where an RIA should register.  

To determine whether an adviser registers with the SEC or their state securities regulator, they must first be categorized as:  

• small advisers: have less than $25 million in RAUM 
• mid-sized advisers: have $25 million to $100 million in RAUM 
• large advisers: have over $100 million in RAUM 

Small and mid-sized advisers 

These must register with and are primarily regulated by one or more state securities authorities. Certain federal securities provisions, however, still apply to state-registered advisers (such as those prohibiting fraud).   

Large advisers 

These are required to register with the SEC and are subject to federal regulation instead of state regulation.  

SEC-registered investment advisers are required to meet state anti-fraud prohibitions. This means that some states may still require that SEC-registered investment advisers obtain licenses and register with their securities regulators. 

Exceptions to the registration rules based on RAUM  

It is not uncommon for small or mid-sized advisers to register with the SEC instead of state securities regulators. So, when does an RIA have to register with the SEC and not a state agency? Here are some instances:  

• Advisers of investment companies registered under the Investment Company Act of 1940 are required to register with the SEC.  
• Mid-sized advisers that are not required to register or not subject to examination by the state securities authority where their head office is based must register with the SEC. 
• When the adviser has at least $25 million of RAUM and services business development companies, they must register with the SEC. 
• Advisers who operate only via the internet and provide advice through an interactive website may register with the SEC, regardless of the amount of RAUM they handle.  
• Advisers that operate in 15 or more different US states and would otherwise be obligated to register in each state may instead register with the SEC. 
• Advisers who work as pension consultants and advise employee benefits plans worth at least $200 million may register with the SEC, despite not having those assets as part of their RAUM.  
• Advisers that are under the control of a common SEC-registered adviser may also register with the SEC, but only if they operate in the same principal office and place of business.  
• Foreign advisers servicing US citizens must register with the SEC, unless they have an SEC exemption. Otherwise, they will have to register with state securities regulators.  
• Some advisers may have the option of either SEC or state securities agency registration.  
• Newly formed advisers who are confident they will obtain SEC registration within 120 days may register with the SEC. 

To be safe, advisers who are uncertain of whether to register with the SEC or a state agency should hire a compliance consultant for advice. 

Registering as an RIA 

Before registering as an RIA, remember that this designation has an educational prerequisite. An adviser or aspiring finance professional should have a relevant bachelor’s degree. Some aspiring RIAs may even have a master’s degree. Be sure to have the requisite education before embarking on the registration process.  

Should you have the requisite education, here are the steps:

Step 1. Take and pass the Series 65 exams.  

This multiple-choice test of 140 questions is designed to assess the would-be RIA’s financial knowledge. Parts of this test can include financial securities law and financial advice. The Financial Industry Regulatory Authority (FINRA) typically administers the test and issues various securities licenses.  

Answering 94 out of the 130 questions correctly is all that’s required to pass the Series 65 exams. The other 10 questions are pre-test questions that do not impact the test-taker’s score.  

Step 2. Consider acquiring additional certifications.  

While advisers who apply to become RIAs do not need any other apart professional certifications, they may still want to get more credentials. The playing field for RIAs is highly competitive, so this can help RIAs get more clients. Useful additional credentials include:  

• Chartered Investment Analyst (CFA) 
• Chartered Financial Consultant (ChFC) 
• Certified Financial Planner (CFP) 
• Chartered Investment Counselor (CIC) 

Step 3. Decide whether to register with the SEC or your state securities regulator.  

As discussed in the section above, registering with either the SEC or securities regulator depends largely on the RAUM handled by the RIA. But in general:  

• RIAs with an RAUM of $100 million or more must register with the SEC 
• advisers who handle less than $25 million register with their state’s securities agency 
• an RIA based in a state with no securities regulator of its own must register with the SEC  
• RIAs with offices in 15 states or more can register with the SEC instead of registering each office in their respective state securities agency 

Step 4. File the necessary forms.  

One of the most important documents for RIA registration is Form ADV. It is mandatory to file Form ADV since it provides the regulatory body (SEC/state regulators) with all the information about the RIA. Form ADV has two main sections.  

Part 1 – This asks for details regarding: 

• RIA’s business structure and ownership 
• List of employees 
• Number of clients 
• Affiliated organizations 
• Business practices 
• Any past offenses and disciplinary actions 

Part 2 – Business disclosure where the RIA describes:  

• Type of services offered 
• Compensation structure 
• Professional background 
• Potential conflicts of interest 

Part 2 of Form ADV is of particular interest, since the information in this section must be made public to RIA’s current and prospective clients.  

Here’s a short video that talks about the different steps in registering as an RIA firm, or as an IAR. In the video, you’ll also hear which US states require registration with their securities agencies. Watch the video also to know details about reviewing for the Series 65 exam, and registration timelines. 

  

Step 5. Complete the registration.  

As the regulatory body you register with reviews your Form ADV, you may be asked for additional information or clarification regarding the information provided. You will be requested to give a compliance program outlining your operational procedures.  

Only after your RIA registration is approved will you be allowed to work with clients. Remember that the Form ADV is not a one-off task, but a recurring one that must be fulfilled every year. You will need to file the form every year to inform the agency you are registered with about any changes to your business.  

Depending on your state securities agency (if you are registered there instead of the SEC), you may also have to post a surety bond. The surety bond is a requirement for IRAs that fail to meet the minimum net worth rules.  

Little-known benefits of becoming an RIA 

At first glance, choosing to register as an RIA may seem more burdensome due to the legally mandated fiduciary duty. But apart from the potential to earn a lot of money from high-net-worth clients, becoming an RIA offers other benefits such as:  

Easier RIA compliance 

Surprisingly, RIAs may find it easier to comply with their regulators. Compared to the compliance requirements FINRA imposes on broker-dealers, RIAs have a relatively easier time.  

RIAs can have sales and marketing materials approved more quickly, with more freedom about what they can present in these materials. The RIA model also has a simpler bureaucratic structure, so advisers can spend more time growing their businesses and servicing clients. 

RIAs are preferred by more young clients 

Millennial clients who have now come of age and joined the workforce are serious about investing, many before they turn 24. Not only do they start investing early in life, but they are also more accepting of the fee-based structure of RIAs. 

Easier to buy and sell the business 

Since RIA firms charge only fees and not commissions, they are much easier to buy or sell than those tied to a broker-dealer. Transferring client accounts and rebranding a purchased RIA firm happens much more quickly and with much less legal and bureaucratic wrangling than selling a firm with a broker-dealer relationship. RIA firms are more appealing to potential buyers, and RIA owners can sell at a higher price.  

Strong organizational support 

RIA firms have the support of the National Association of Personal Financial Advisors (NAPFA). Since its founding in 1983, NAPFA has provided professional networking and support to the fee-only advisers.  

The organization provides members with marketing and networking support and opportunities for continuing education.  

NAPFA conducts annual conferences where members can share ideas and learn about new financial products, services, and industry trends. The NAPFA website also helps connect RIAs with clients seeking fee-based advisers.  

As tedious and time-consuming as it is, the RIA application process and its ensuing registration are necessary. RIA registration should not be seen as an obstacle, but a valuable stepping stone for an adviser’s success and their clients’ financial well-being.  

What do you think about the RIA registration requirements? Is it worth the trouble to become an RIA? See what other industry experts have to say about it here on InvestmentNews.