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What Is a Registered Investment Advisor (RIA)?

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on May 17, 2022

An RIA is a registered investment advisor.

It’s an individual or organization that has permission to give financial advice, manage investments, and charge fees based on the level of service provided. Advisors can be paid in different ways: either by direct fees for services (e.g., hourly fee, per-trade), percentage of assets managed (e.g., 1-2% of the portfolio value every year), or a combination (e.g., hourly fee, but only for advice on the transition to retirement planning).

An advisor registered with the US Securities and Exchange Commission (SEC) is required to act in their client’s best interest. This means that they cannot recommend investments that are not suitable for the client – this would be considered giving advice while putting their own interests after those of the client (i.e., conflict of interest).

How Does an RIA Differ From a Broker-Dealer

A broker-dealer is not required to act in the client’s best interest. Instead, they are required to recommend investments that are “suitable”, which can mean very different things depending on the context and who is determining what’s suitable. It also means that it doesn’t matter what’s in the client’s best interest – if the investment is suitable, then it must be recommended.

Why You Should Hire an Advisor

You can’t manage your own investments because doing so would violate state or federal laws (e.g., prohibited transaction rules), or you are not managing your money yourself because you are busy with other matters that you don’t have time for.

Another good reason to hire an advisor is if you want a comprehensive financial plan. Advisors can help you determine what your goals are, and they can also see the “big picture” as it relates to all aspects of your financial life.

Why Should I Use an RIA Over a Broker-Dealer

In this scenario, the advisor is able to invest the client’s money as they choose without any additional considerations – the client would be able to receive comprehensive financial planning services at a very reasonable rate.

An RIA doesn’t have limitations on what investments can be recommended. They are able to provide any investment service that their client would need, including the purchase of private placements, which is not allowed for broker-dealers.

How to Find the Right Advisor for Your Needs

There are many things to consider when choosing an advisor. Here are some of the most important factors:

Education and experience

  • How long has the advisor been in business?
  • What is their financial planning background? (i.e., do they have a CFP designation?)

Investment philosophy/style

  • How are investments chosen?
  • Do they have any “house” investment strategies that are kept separate from the client’s money, or do they use the same account for all clients?
  • How often are investing decisions reviewed to ensure they still align with your goals?

Fee structure

  • What’s included in their fee (e.g., investment management, financial planning advice)?
  • Are there additional fees for different services?
  • Is there a “catch-all” fee where other expenses are included?

Transparency

  • How transparent is the advisor with their fees?
  • Do they charge sales commissions or trailer fees (e.g., an extra percentage of assets that must be paid for as long as the account is open)?
  • Do they have any conflicts of interest that they aren’t disclosing?

The Benefits of Hiring an RIA

Listed below are the benefits of hiring a registered investment advisor:

The_Benefits_of_Hiring_an_RIA

Different Types of Advisors Available

There are many different types of advisors, such as:

  • Certified Financial Planners
  • Chartered Financial Consultants
  • Investment advisors registered with the Securities Exchange Commission (SEC)
  • Brokerage account managers who are registered representatives of a broker-dealer.
  • Fee-based financial planners
  • Fee-only financial advisors

The list of professionals who can call themselves “advisors” is long, so it’s important to do some research on the professional you choose. Make sure that they are licensed or certified, and that they have sufficient experience before you hand over your hard-earned money.

The Bottom Line

Hiring an advisor may seem intimidating, but finding a professional who’s experienced and qualified is worth the effort.

Start by asking family and friends for referrals, then spend some time learning about the different types of advisors available. Once you’ve done your research, it should be easier to find a professional that can help you determine what your financial goals are and how to reach them.

An RIA is a registered investment advisor. It's an individual or organization that has permission to give financial advice, manage investments, and charge fees based on the level of service provided.
Many investors hire advisors who are registered with the Securities Exchange Commission (SEC). These advisors may call themselves investment advisors or brokerage account managers. However, their main focus is selling products to make commissions on their sales. These products can include securities such as stocks, fixed annuities, variable annuities, and mutual funds.
The simple answer to the first question is that your advisor must abide by the "SOL" (the "standard of care") if they are giving you financial planning advice. There are other benefits as well, such as your ability to easily access different investment strategies and opportunities. For example, instead of investing in mutual funds, you could consider investing in an investment club or a hedge fund.
Start by asking family and friends for referrals, then spend some time learning about the different types of advisors available. Once you've done your research, it should be easier to find a professional that can help you determine what your financial goals are and how to reach them.
As with other professionals, the fee-based advisor may charge either an hourly rate or a set fee for their services. A commission-based fee is more transparent than an asset based RIA fee, because it's clear exactly what the advisor is getting paid for. In many circumstances, you have a choice between paying a commission and an asset management fee (which can be tied to assets). It may not seem like much of a difference, but this distinction could make

Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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®), 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.