What is an RIA? 

In your work as a financial professional, understanding the key players and their role in managing and protecting investments is of utmost importance. The Registered Investment Advisor (RIA) is one such player that has gained prominence in the financial industry. 

 
As many individuals and businesses seek expert guidance in navigating the complexities of investment strategies, RIAs have emerged as trusted advisors. They offer personalized financial advice and customized investment strategies.  

What sets RIAs apart from other advisors like broker-dealers or financial advisors? RIAs are registered with the Securities and Exchange Commission (SEC) or state securities regulators. It’s this regulation that ensures RIAs offer their services with a higher level of accountability and regulatory oversight. 

As registered finance professionals, RIAs are held to a higher fiduciary standard. This means they are legally obligated to act in their clients’ best interests.  

Their fiduciary duty is what truly sets RIAs apart from other wealth managers who may have conflicting interests or obligations. In this article, InvestmentNews explores the importance of RIAs and their relevance in the financial industry today. 

Introduction to Registered Investment Advisors 

The foremost question of investors and advisors alike is what is a Registered Investment Advisor (RIA)?  

An RIA can be either an individual or a company that provides financial advice.  

Fiduciary duty 

What is fiduciary duty and why is it relevant to RIAs?  

Fiduciary duty is something that RIAs are legally obligated to adhere to. It is like swearing an “oath of loyalty” to clients. Put simply, fiduciary duty is a legal obligation to act in the best interests of a client. To what extent does an RIA act in their clients’ best interests? They always place clients’ financial interests above their own.  

These financial professionals are unlike other financial advisors: they have agreed to uphold the fiduciary standard when transacting with clients.  

How much and how do RIAs charge?  

RIAs do not work on commission. Since they are registered with the Securities and Exchange Commission (SEC), they provide their clients with guidance and investment management for a fixed fee. RIAs typically have fee structures where their clients pay annual fees equal to a percentage of the assets they manage.  

The fee they charge often ranges from 1% to 3% of a client’s assets. While that may seem like a small amount, remember that some RIAs have Assets Under Management (AUM) that can run in the hundreds of millions of dollars. According to a 2019 study, the average RIA investment advisor’s fee was 0.96%.  

There are other fee structures that are becoming more popular as clients engage advisors’ services in new and different ways. Some examples: 

• retainer 
• flat fees on a per-project basis 
• minimum fee 
• hourly fee 
• fee based on total assets and income 

What are the duties and responsibilities of an RIA? 

An RIA has at least three primary duties: 

1. They have a fiduciary duty 

This means that RIAs must act in the best financial interests of their clients and place their clients’ interests above their own. Some RIAs take their fiduciary so seriously that they hesitate to ask their own clients for referrals. 

RIAs are legally obligated to provide their clients with financial products that suit their needs at the lowest possible cost.  

As for non-RIA financial professionals, they only need to present suitable products and they can earn commissions from their clients.  

2. RIAs are obligated to register 

RIAs, as the “registered” in their acronym suggests, must register with either the SEC or their state’s securities regulator. In some cases, they must register with both regulatory bodies, depending on their AUM. 

Learn how to register as an RIA in this article.

3. RIAs can provide more than investment advice 

While RIAs generally give advice on subjects related to their clients’ financial life, they may also provide advice on related topics. RIAs can also advise clients on:  

• retirement planning 
• tax planning 
• insurance  
• estate planning 

What are the benefits of working as an RIA? 

Even if being an RIA calls for more responsibility due to fiduciary duty, the job of RIA offers several benefits. Here are some of the job’s benefits that may attract non-RIA professionals and graduates fresh out of college:  

• You gain fiduciary status, which can attract high net-worth clients seeking trustworthy advisors 
• You are given license to practice and provide superior “investment advisory services” for fees, resulting in better chances of earning more   

• You can deliver higher value-added service, providing more growth opportunities 
• As clients can diversify their portfolios, so can you as an RIA; you get to deliver more client-centric, multi-product advice across asset classes and enjoy better business prospects 
• You have the rare opportunity to become a guide and mentor to clients, creating a roster of long-term clientele 
• If you establish an RIA company, you can have a business that’s future-proofed against even the most advanced levels of automation 
• You enjoy better societal status as a licensed service provider and have more trust with investors. 

Can anyone become an RIA? 

The easy answer is yes, but with some caveats. If you want to become an RIA, you must first fulfill the eligibility requirements for registration with either the Securities and Exchange Commission (SEC) or their state’s securities agency.  

To become an RIA or IAR (more on their differences later), these are the requirements:  

• earning a Bachelor’s degree in a relevant, related field such as Accounting or Finance 
• passing the Series 65 Examination, administered by FINRA 
• filing Form ADV with the SEC and state securities regulators 

While there are no other designations or licenses required apart from Series 65, a finance professional would fare better as an IAR if they had additional certifications. To become a successful IAR, these other qualifications or certifications can be very helpful in your career:  

• Personal Financial Specialist (PFS) 
• Chartered Financial Analyst (CFA) 
• Chartered Financial Counselor (ChFC) 
• Chartered Investment Counselor (CIC) 
• Certified Financial Planner (CFP) 

There are also a couple of optional licensure tests you can take, namely the Series 6 and Series 7 tests. These are what you can get by taking them:  

• Series 6 license – allows you to trade a specific type of investment products, such as certain types of mutual funds, insurance, and variable securities  
• Series 7 license – allows you to trade a wider range of securities like corporate securities, municipal fund securities, investment company products, direct participation programs, and variable contracts 

RIA and IAR: What’s the difference? 

These two terms, Registered Investment Advisor (RIA) and Investment Advisor Representative (IAR) may appear as similar acronyms, but they are very different.  

• RIA: an individual, a legal entity or a company that is registered with the SEC or state securities agency. The RIA offers financial advice to clients for a fee or other fee structure 
• IAR: someone who works for an RIA firm. The IAR typically passed the licensure exam (Series 65 exam) for the privilege of offering investment advice to clients 

As a legal entity, an RIA can have many employees like several IARs. An RIA can also be one person who is both an RIA and their own IAR. IARs work for the RIA, providing actual financial services to clients. 

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

Broker-dealers and other non-registered financial planners may only give financial advice that meets the suitability standard, and not the fiduciary standard. This means that broker-dealers can provide financial advice that meets their clients’ needs that also earns them higher fees or commissions.  

Broker-dealers are also engaged in trading in securities and receiving commissions, while RIAs mostly advise clients in various aspects of their investments. RIAs do not receive commissions and are hired on a fee basis. 

What is the difference between an RIA and a financial advisor? 

As with broker-dealers, financial advisors are likewise not bound or guided by fiduciary duty. This also means that they are only required to provide financial advice that does nothing more than suit the client’s needs. Non-registered financial advisors can also earn higher fees and/or commissions from their own clients. 

Should an RIA be registered with the SEC or a state securities agency? 

Where an RIA is registered depends largely on the amount of its AUM (Assets Under Management). Should they have $100 million in AUM or more, then the RIA must register with the SEC. If they have less than that amount in AUM, then the RIA or IAR can register with their state’s securities agency.  

Here’s how to know at which regulatory body to register:  

Assets Under Management (AUM)	Registered with
Below $25 million	State securities agency
Between $25 and $100 million	SEC and/or state securities agency
$100 million and up	SEC

There can be certain exemptions to registration, which are detailed below.

SEC registration rules 

In general, RIAs must register with the SEC or state securities agency, but this is not always the case. Depending on their size, an RIA may or may not register with the SEC and must register with their state’s securities agency instead, or in both agencies in some instances. Here are the registration rules:  

For small RIAs with less than $25 million AUM:  

They cannot register with the SEC. This is especially true if the RIA has its principal office and operations in a state that regulates advisors. At present, this means all US states except for Wyoming. 

For medium-sized RIAs with AUM of between $25 million and $100 million: 

An RIA with this much AUM is required to register with the SEC if its principal office and operations are in New York or Wyoming, unless a registration exemption is available. Exemptions include those applied to specific advisors who handle private funds.  

Medium-sized RIAs are also required to register in the securities agency of their home state. 

If the medium-sized advisor is not required to register in that state, they must register with the SEC, unless they have a registration exemption. 

Large-sized RIAs approaching $100 million of AUM: 

An RIA with this sort of AUM can rely on a registration “buffer” that ranges from $90 million to $110 million of AUM. The RIA: 

• can register with the SEC once it reaches $100 million of AUM 
• is obliged to register with the SEC once it reaches $110 million of AUM, unless a registration exemption is available 

After registering with the SEC, the RIA is not required to withdraw its SEC registration and register with the state’s securities agency if its AUM falls below $100 million. This applies only if the RIA’s AUM shrinks to less than $90 million. 

Lastly, a large RIA with at least $110 million of AUM is required to register with the SEC, unless a registration exemption is available. 

Nowadays, you may encounter what’s known as an Independent RIA, a person or entity that is not tied to any financial company or product. They are completely independent and have the freedom to choose from a wide range of investment options, and truly do what is best for their clients. This is an interesting career choice for financial professionals and clients alike. Watch this video for more:  

Why is it important to work with an RIA? 

As an RIA, current and prospective clients might pose this question to you. Here are some of the best reasons to present:  

• hiring an RIA is the only way for clients to ensure that the laws on investment advisor conduct (as outlined in the Investment Advisers Act of 1940) are applied 
• a non-registered finance professional or company are not bound by those laws 
• RIA firms are legally obligated to take care of their clients’ wealth, treat them fairly, and make sure they are well-informed 

Going through the long and sometimes arduous process of becoming an RIA looks difficult at first glance. This can entail more responsibilities and restrictions (thanks to fiduciary duty) that might discourage even the most fearless financial professional.  

However, becoming an IRA or working for one has its rewards. Apart from the potential for a higher income, this career path appeals to those with an entrepreneurial mindset and who would like to strike it out on their own.  

A good strategy would be to build your client base, expand your professional network, and gain as much knowledge and experience. Then you can decide if becoming an RIA is right for you.  

Is becoming an RIA a career move you’d consider? You can always check out opinions and advice from other finance professionals right here on InvestmentNews!