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Registered Investment Advisor (RIA)

Reviewed by Bhavana | Updated on Sep 30, 2020

Catalogue

Meaning of a Registered Investment Advisor (RIA)

Registered Investment Advisor (RIA) is an individual or a firm that advises high net worth individuals on investments and manages their portfolios. RIAs will have a fiduciary responsibility towards their clients, which means that they have a moral obligation to give financial advice that is always in the best interests of their clients.

As the first word of their title suggests, RIAs are expected to file with either the State Securities Administrator or the Securities and Exchange Commission (SEC).

## Understanding RIA in Detail

Directly supervised by the Securities and Exchange Commission (SEC), RIAs are deemed to be operating in a fiduciary capacity and, therefore, to have a higher level of conduct than licensed agents. This standard trustee mandates that the RIA must always unconditionally put the best interests of the client ahead of its own interests, irrespective of any other circumstances.

RIAs are also expected to report any potential conflicts of interest to their clients and to behave ethically in all of their business dealings. A few RIAs charge their clients with a percentage of their assets under administration, while others charge an hourly or flat fee for advice. Advisors who choose this model for their practice must obtain a Series 65 license.

## Competitors of RIA

RIAs try to compete with the following categories in the provision of investment services:

  • Hedge funds
  • Mutual funds
  • Wirehouse firms (example: investment banks)-through wrap programs for individual brokers
  • Robo-advisors
  • Online or discount brokers who assist do-it-yourself investors

    Ongoing Obligations of RIA

Beyond simply registering to receive certification, RIAs must follow certain practices and procedures when providing advice to their clients. These involve the identification of any threats or possible conflicts of interest regarding the transactions that they suggest and ensuring that the client recognizes them.

When, at some point, the consultant is questioned by the client as to the suitability of the investment, it is the duty of the consultant to show that all steps have been taken to reveal the risk and to determine the suitability of the investment.

From the SEC's perspective, the paperwork is everything. If the SEC has ever been involved in investigating an investor lawsuit, it needs full documentation of the investment approach used, along with customer documents that show knowledge of the client's investment profile and risk tolerance.

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