If you're someone with a sizeable sum of money to invest, finding an advisor to help with that is easy. Finding one who is legally bound to act in your best interest can be easy, too if you make sure you work with a Registered Investment Advisor, or RIA.

RIAs are investment advisory firms that register with and agree to be regulated by the U.S. Securities & Exchange Commission. As fiduciaries under the Investment Advisors Act of 1940, they operate under a different and higher standard of responsibility to their clients than any other type of financial advisor. They are legally obligated to act in their clients' best interest, even if that turns counter to the firm's own interests. For example, if two investment products offer the exact same return opportunities and risk profile, but at a different cost, an RIA would be obliged to recommend the lower cost option. While other advisors may choose to adhere to similar standards RIAs remain the only advisors with the legal responsibility to do so. Those that fail to put their clients' interests before their own invite penalties from the SEC, or, in the case of smaller firms, state securities regulators.

Most RIAs are structured as partnerships, corporations or limited liability companies. They typically cater to high net worth individuals who have complex financial needs that don't lend themselves to a do-it-yourself approach, as well as family offices, retirement plans and other institutional investors. Many are led by former employees of banks and brokerage firms (investment professionals who left their corporate positions for the freedom and flexibility to set up smaller shops) where they could more closely align their services with their clients' needs.




Unlike some other types of advisors, RIAs are not obliged to try to sell the products of an employer, nor are they restricted from selling products or services an employer may not offer. They often find that operating independently makes it easier to share informative articles and other educational materials with their clients, since they can establish more efficient compliance protocols than those at larger organizations with multiple lines of business. Finally, most registered investment advisors utilize a fee-based compensation model that rewards them when their clients' portfolios perform well, rather than a compensation-based model that rewards them for selling a particular product or service.

Typically, the entrepreneurs who chose to work under the RIA model want to get out from under the captive product architecture of regulatory environment they're operating in. They like being able to look wherever they want for investments that meet clients' needs without any pressure to sell specific products or services. They also like being able to offer a level of personalized service that sometimes isn't as easy to provide in a corporate environment.

That enticing proposition has resonated with high-net-worth investors, prompting increasing numbers of them to flock to RIAs over the past decade. There are plenty of investors who have not yet discovered the unique value proposition Registered Investment Advisors bring to the table.


10 things every investor should know about RIAs:


1. You often can’t tell who’s an RIA just by looking at their name.

Since many RIAs don’t use the term “Registered Investment Advisor” in their name, you may simply have to ask.   Alternatively, you could ask to see their Form ADV, a report every RIA is required to file annually with both the SEC and state securities authorities in the state or states where they operate.   Among other things, this form lists the types of services the RIA provides, the types of clients it serves, how the firm is compensated and whether disciplinary action was taken by securities regulators against the firm.   You can also visit the SEC’s website and click on the “Check Out Brokers and Advisors” tab to see the latest Form ADV filed by any Registered Investment Advisor.

2. Because RIAs perform many different services, it is important to pick one that’s right for you.

Some RIAs provide investment management services only, while others offer a wide variety of services, from financial planning and investment management to tax planning and reporting, estate planning, even bill paying.   Some work primarily with individuals, others with family offices, still others with retirement plans and other institutional investors.   Some cater to investors with several hundred thousand dollars to invest, while others focus on investors with multimillion-dollar portfolios.   To get the best service, look for an RIA that caters primarily to clients like you and offers the services you need.


3. Investment professionals working for RIAs come from many different backgrounds.

Employees of Registered Investment Advisors are referred to by the SEC as “investment advisor representatives” and have a wide variety of professional backgrounds.   Those specializing in financial planning are often Certified Financial Planners (CFPs), while many specializing in investing are Chartered Financial Analysts (CFAs).   Some investment advisor representatives are former stockbrokers (also known as Registered Representatives)), bankers or certified public accountants.   Whatever their differences, all are bound by the fiduciary standards imposed on RIAs.

4. The investment universe available through an RIA is virtually unlimited.

Because they are not beholden to any one company or its investment products, RIAs are free to recommend any investment product or strategy that is in their client’s best interest.   Thus, depending upon your circumstances, an RIA might help you build a portfolio that includes individual stocks and bonds, commodities, mutual funds, exchange-traded funds, hedge funds, private equity funds and/or custom investment products.

5. RIAs can be compensated in many ways, but they must disclose all sources of compensation.

Unlike some other types of advisors, RIAs are required to disclose on Form ADV exactly how they are compensated.   Some RIAs operate on a fee-only model.   This means they are compensated solely by their clients, typically charging an annual fee equal to some percentage of their client’s assets.   That percentage generally starts at about 1 percent or so and declines as the size of the client’s portfolio increases.   Some advisors also charge flat fees for special projects or bill-paying services, and performance-based fees.   “Fee-based” RIAs may also accept commissions on the sale of certain investment products, as well as referral feels from other professionals, such as accountants and attorneys.   Again, though, they must disclose these sources of compensation to their clients on Form ADV.

6. RIA compensation models help to align the advisors’ interests with those of their clients.

Advisors who rely on asset-based fees for compensation earn more from each client only when the client’s portfolio increases in value.   This closely aligns advisor interests and reinforces the advisor’s incentive to recommend investments and strategies that will best benefit their clients.

7. RIA fees are typically positioned as non-negotiable, but it doesn’t hurt to ask.

Many registered investment advisors adhere to a strict fee schedule from which they will not deviate, both as a matter of fairness to clients and for simplicity of management.  

8. You don’t need to be a millionaire to work with an RIA.

Most RIAs require that their clients invest some minimum amount of money with them so that their fees are sufficient to cover the cost of servicing those accounts.   Depending upon the firm, that minimum might be set at $250,000, $500,000 or even $1 million or more.   Many RIAs will make exceptions from time to time:  for the children of clients, for example, or where there is a reasonable expectation that the clients’ account is likely to grow.    Most firms will take on people if they have the potential to add money to their portfolios over time.   A young doctor who is just starting out in his or her career would be a perfect example.

9. You have multiple options for assessing an RIAs performance.

One of the best ways to assess the overall level of service provided by an investment advisor is to get references from their other existing clients.   Assessing investment performance can be trickier, since the portfolios an advisor builds will vary from client to client based on each one’s unique investment goals and circumstances.   While RIAs can show you how some of their select actual client portfolios have performed, the SEC prefers to alternative methods.   One is to show composite results of bundled client accounts that meet certain common characteristics, such as type of client, asset allocation or risk profile.   The second is to show results for model portfolios the firm has designed for different types of hypothetical investors.   As the firm makes recommendations to its actual clients over the course of time, it implements similar recommendations in its model portfolios.

10. You can continue to work with other investment advisors while working with an RIA.

Most RIAs are happy to work in tandem with your existing advisors, including your accountants, lawyers and bankers, to make sure that you financial goals are being addressed in a holistic manner.