Registered Investment Advisers Should Always Put Their Clients First

Who are the registered investment advisors?

Registered investment advisors or RIAs are people who advise sophisticated, high-net-worth or established people regarding their investments. Aside from that, they also manage the portfolios. They have a fiduciary duty to their huge clients. What is fiduciary? It is the fundamental obligation to advice on investments that will lead them to their best interests.

Are registered investment advisors regulated?

RIAs need to register with the SEC and the state security administrators. The SEC directly regulates them. Since RIAs have the fiduciary obligation not only to ordinary people but people of high net worth, they should hold a higher standard of conduct than the registered representatives. We are all trying to make a living, and we try as much as we can to earn. However, RIAs always need to put their client’s best interests first before their own regardless of the situation.

How are RIAs paid?

RIAs need to let the client know all about the potential conflict of interests. They should always act ethically in all aspects of the business. One RIA may charge differently from another. One RIA may charge clients on a percentage basis of their assets under management. On the other hand, another might charge a flat fee or hourly rates when they give advice. However, those who charge this way need to have a Series 65 license first.

RIAs earn from management fees made up of a percentage of assets held for clients. This payment method is similar to that of mutual fund managers. Fees do not stay the same, but they are generally around 1%. If the client has more assets, the fee might just become cheaper. And when we say cheaper, it can be as low as 0.35%. This is very beneficial to clients because the RIA cannot make any more money from that account unless the client raises his asset base or AUM.

The roles of RIAs

After registering and getting certification, an RIA can now advise clients while adhering to practices and procedures. An RIA should disclose any possible risk or conflict of interest that a client may encounter involving the transactions that the RIA might recommend. Also, they should ensure that the client understands everything. What happens if the client complains about the investment’s suitability? It is a burden on the RIA’s part to say that all measures were carefully considered. And that he disclosed all risks that may arise to ensure that the investment is suitable.

What does SEC have to say?

SEC recommends that RIAs should document everything. So, if a client complains to SEC, the RIA can be protected through those documents regarding the used strategy. These documents should also state that the client was aware of the investment profile and risk tolerance.

Highlights for today

RIA is short for a registered investment advisor. They manage an individual’s or an institutional investor’s assets. RIAs need to register with the SEC and state regulatory agencies because they are on the buy-side investment service and fiduciary. They are paid like mutual fund managers since they earn through a management fee made up of a percentage of assets that are held for clients. This is generally 1% annually of AUM.