Registered Investment Advisor
Encyclopedia
The term Registered Investment Adviser (RIA) is used to describe an Investment Adviser who is registered with the Securities and Exchange Commission or a state's securities agency. The term has been popularized due to its use within the Investment Advisers Act of 1940
and its association to the term "Investment Advisor
" (IA) (spelled "Investment Adviser" in U.S. financial law). An IA is defined by the Securities and Exchange Commission as an individual or a firm that is in the business of giving advice about securities.
Individuals or firms that receive compensation for giving advice on investing in securities such as stocks, bonds, mutual funds, or exchange traded funds are deemed to be investment advisers. It is also common for investment advisers to manage portfolios of securities. RIAs generally are paid in any of the following ways: a percentage of the value of the assets they manage for you, an hourly fee, fixed fee, a commission on the securities they sell (if the adviser is also a broker-dealer).
. This standard requires IAs to act and serve a client's best interests with the intent to eliminate, or at least to expose, all potential conflicts of interest which might incline an investment adviser—consciously or unconsciously—to render advice which was not in the best interest of the IA's clients.
Section 202(a)(11)(C) of the Investment Advisers Act of 1940 exempts from the definition of an Investment Adviser (and therefore the associated fiduciary standard) "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor."
In Release 34-51523; the Financial Industry Regulatory Authority
(FINRA), the US Securities Self Regulatory Organization (SRO) having authority over Brokers and Dealers, determined that Broker-Dealers (BD) are "not to be deemed investment advisors" and therefore are not subject to the same fiduciary standards as IAs when recommending investments to clients, as are Registered Investment Advisers (RIA).
Registered Representatives (RRs) affiliated with a Broker Dealer are therefore required to recommend securities that are deemed "suitable" for non-institutional clients. The FINRA "Suitability" standard requires that a member shall make reasonable efforts to obtain information concerning a client's:
RRs of a Broker-Dealer who also engage in the business of providing investment advice are required to affiliate with a Registered Investment Adviser. As Investment Adviser Representatives (IARs) they are held to the "Fiduciary Standard" as defined under the US Investment Advisers Act of 1940
when providing investment advice to clients. This requires the dually registered Financial Advisors recommending a security to clearly communicate to their clients whether they are brokering a suitable security as a RR or providing investment advice as an IAR and therefore acting as a fiduciary.
(CFP), Chartered Financial Consultant
(ChFC); Personal Financial Specialist (PFS), Chartered Financial Analyst
(CFA), or Chartered Investment Counselor (CIC).
Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
and its association to the term "Investment Advisor
Investment Advisor
The term Investment Advisor is an individual or firm who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities...
" (IA) (spelled "Investment Adviser" in U.S. financial law). An IA is defined by the Securities and Exchange Commission as an individual or a firm that is in the business of giving advice about securities.
Individuals or firms that receive compensation for giving advice on investing in securities such as stocks, bonds, mutual funds, or exchange traded funds are deemed to be investment advisers. It is also common for investment advisers to manage portfolios of securities. RIAs generally are paid in any of the following ways: a percentage of the value of the assets they manage for you, an hourly fee, fixed fee, a commission on the securities they sell (if the adviser is also a broker-dealer).
Fiduciary standard
An IA must adhere to a fiduciary standard of care laid out in the US Investment Advisers Act of 1940Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
. This standard requires IAs to act and serve a client's best interests with the intent to eliminate, or at least to expose, all potential conflicts of interest which might incline an investment adviser—consciously or unconsciously—to render advice which was not in the best interest of the IA's clients.
Investment Adviser Fiduciary Standard vs. Broker-Dealer Suitability
The financial industry and lawmakers have yet to establish a consistent standard for providing investment recommendations to retail investors.Section 202(a)(11)(C) of the Investment Advisers Act of 1940 exempts from the definition of an Investment Adviser (and therefore the associated fiduciary standard) "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor."
In Release 34-51523; the Financial Industry Regulatory Authority
Financial Industry Regulatory Authority
In the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization . FINRA is the successor to the National Association of Securities Dealers, Inc. ...
(FINRA), the US Securities Self Regulatory Organization (SRO) having authority over Brokers and Dealers, determined that Broker-Dealers (BD) are "not to be deemed investment advisors" and therefore are not subject to the same fiduciary standards as IAs when recommending investments to clients, as are Registered Investment Advisers (RIA).
Registered Representatives (RRs) affiliated with a Broker Dealer are therefore required to recommend securities that are deemed "suitable" for non-institutional clients. The FINRA "Suitability" standard requires that a member shall make reasonable efforts to obtain information concerning a client's:
- Financial status
- Tax status
- Investment objectives
- Other information used or considered to be reasonable
RRs of a Broker-Dealer who also engage in the business of providing investment advice are required to affiliate with a Registered Investment Adviser. As Investment Adviser Representatives (IARs) they are held to the "Fiduciary Standard" as defined under the US Investment Advisers Act of 1940
Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
when providing investment advice to clients. This requires the dually registered Financial Advisors recommending a security to clearly communicate to their clients whether they are brokering a suitable security as a RR or providing investment advice as an IAR and therefore acting as a fiduciary.
State Registered Investment Advisers
In general, RIAs managing assets totaling less than $100 million must register with the state securities agency in the state where they have their principal place of business.Federally Registered Investment Advisers
In general, RIAs who manage $100 million or more in client assets must register with the US Securities and Exchange Commission (SEC). While the process is not as involved as registration as a broker-dealer, it can be complex.Licensing Requirements
Agents of the RIA who are charged with providing investment advice are called an "Investment Adviser Representative" (IAR). These IARs must generally complete the FINRA (List of Securities Examinations) Series 66 in addition to the Series 7 or Series 6 Exams, or by meeting the exam waiver requirement by holding one or more of the following pre-qualifying designations; Certified Financial PlannerCertified Financial Planner
The Certified Financial Planner designation is a professional certification mark for financial planners conferred by the Certified Financial Planner Board of Standards, Inc...
(CFP), Chartered Financial Consultant
The American College (Bryn Mawr, PA)
The American College is a nonprofit private educational institution located in Bryn Mawr, Pennsylvania. It offers several professional certifications and two types of Master's degree. Annually, The American College educates approximately 40,000 students, mainly through distance education.The...
(ChFC); Personal Financial Specialist (PFS), Chartered Financial Analyst
Chartered Financial Analyst
The Chartered Financial Analyst Program is a graduate level self-study program offered by the CFA Institute to investment and financial professionals...
(CFA), or Chartered Investment Counselor (CIC).
See also
- Financial AdviserFinancial adviserA financial adviser, is a professional who renders financial services to individuals, businesses and governments. This can involve investment advice, which may include pension planning, and/or advice on life insurance and other insurances such as income protection insurance, critical illness...
- History of certifications in financial planning across the globe
- Investment AdvisorInvestment AdvisorThe term Investment Advisor is an individual or firm who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities...
- List of Securities Examinations