Benefits of Working with Registered Investment Advisor (RIA) Firms

A Registered Investment Advisor (RIA) is your best option when looking for an investment advisor/manager. RIA’s are registered with the SEC, have significant education requirements, and put client interests above their own. An RIA has to register with the Securities Exchange Commission which is a government organization that regulates people giving financial advice. They are also subject to regular audits. They have to be fiduciary, meaning that the needs of their clients are taken into consideration before any other factor when making investment decisions, while brokers only have to sell their products in an unbiased way. A fiduciary has legal liability while a broker does not. Clients usually don’t have to pay a fee or any charges if they choose not to take the investment advice offered. Advisors have a fiduciary responsibility under federal law and must comply with rules established in the 1940 Act.

Why Should I Hire an RIA?

In short, because they have to follow higher standards that protect your interests. They have a duty to put your priorities first, which means that you won’t be overcharged or lose money because of unethical practices. They hold higher education requirements and have legal liability under the law. This gives you protection if their services go wrong. Their fiduciary duty means they must always put your interests before any other personal interests. A major benefit of hiring an RIA is the education requirement, which means that your advisor has been educated in order to give you professional advice. Also, since they have a fiduciary responsibility, your interests come first.

What Are the Benefits of Hiring an RIA?

An investment advisor must not only abide by certain rules and regulations that protect clients, but they must also have a fiduciary responsibility. This means that their interests and your interests are one and the same: to give you the best service possible and not overcharge. Since RIAs have legal liability under the law, you get protection from any negligent or unethical practices. You can trust your advisor to always put your interests first. They must work in your best interest and cannot give advice that benefits only them, and not you. You don’t have to pay if you choose not to go with the advice offered by an RIA, while a broker is usually paid whether or not you take their advice.

Questions to Ask When Interviewing Potential Advisors

You should ask the following:

  1. How do you get paid? (hourly, commissions, a percentage of assets under management, or a flat fee?)
  2. What is your investment philosophy? Do I agree with it?
  3. How long have you been in business?
  4. How many clients do you have? Do any of their accounts overlap with mine?
  5. What are your qualifications and training? What types of securities will I be investing in? What is your investment strategy (active management vs. passive vs. alternative)?
  6. Can I meet 1-3 clients you currently manage and ask them about their experiences with you?
  7. What is your process for addressing mistakes and what happens if we disagree about something? How will we come to a mutual agreement on an issue that arises in our relationship?
  8. What kinds of investments do you make (stocks, bonds, mutual funds etc.)
  9. Are you a Certified Financial Planner?
  10. Can I see a copy of your Form ADV Part 2 and the brochure that goes with it?
  11. How will we work together to create a plan for me?

Tips on How to Make the Most Out of Your Relationship With Your Advisor

  1. Open, honest communication is the key to working effectively with your advisor. Be clear about what you need and want from them so that they can build a plan around your needs, not their agenda.
  2. It’s important for you to take responsibility for your life and finances by doing research, budgeting, creating goals, and understanding how your actions affect your investments.
  3. Stay on top of the market by reading books, news sources and finance magazines to begin to understand some basic concepts in investing.
  4. Meet with your advisor regularly – some suggest four times a year is a good time frame while others recommend more or less depending on your goals and comfort.
  5. Be systematic about how you track your money so that you can review it regularly with your advisor.
  6. Take responsibility for your financial future by making changes in order to improve things, even if they aren’t the sexy or exciting changes right away. Sometimes it’s the little steps along the way that eventually lead to a great outcome.

The Bottom Line

Hiring an investment advisor will give you peace of mind and freedom from having to manage your own investments. You’ll rest easy knowing that you have a pro keeping your best interests in mind as they develop a plan for you that fits into your lifestyle and meets your financial goals. You should also seek out a planner who is a Certified Financial Planner, as they have met certain training and education requirements. This ensures to you that the advisor has the knowledge and expertise needed to look at all aspects of your finances, from insurance coverage to investing advice. In addition, it’s always good practice to meet with your advisor before you sign any contracts, to make sure that they are the right person for the job.  You want to feel comfortable with them and trust that they have your best interest in mind. With a little research, you can find an advisor who is the right match for you.

Registered Investment Advisors (RIA) are financial advisors who abide by the Fiduciary Oath, where they put their client's best interest before their own. An RIA must disclose all fees and potential conflicts of interest, while also working to develop comprehensive strategies for your investments. They also have the education and training necessary to provide you with the best information.
Ask family or friends for referrals, then conduct your own research on the advisor's background, experience, education, insurance licenses and disciplinary history (if applicable). Check whether they hold the CFP designation (certified financial planner), which means they have passed a comprehensive exam and put in the appropriate time and effort to receive this designation. Other credentials to consider hiring include the CLU (chartered financial consultant), ChFC (chartered financial consultant) or PFS (personal financial specialist).
An RIA is held accountable to these high standards, while also being required to disclose any potential conflicts of interest. Additionally, they are more likely to provide you with comprehensive advice and implement an investment strategy that best suits your needs.
It's important for you to take responsibility for your life and finances by doing research, budgeting, creating goals and understanding how your actions affect your investments. However, some of these tasks may be beyond your expertise as you have other commitments, such as a demanding career or family obligations. Hiring an RIA can relieve you of the burden of managing your own finances by setting up everything for you and helping to create a comprehensive financial plan that suits your lifestyle and goals.
Meet in person before signing any agreements. Be sure that they have a good reputation and that they are licensed to provide their services. Ask yourself whether you feel comfortable, and try to determine whether you have the same priorities. Ask friends and family for references, then check up on them to make sure they are legitimate. Potentially ask your advisor questions including whether or not they are a fiduciary, what services they offer, how much their fee structure is, what products they sell, and if they can provide you with client testimonials.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.