The financial services industry is a rapidly changing professional environment, and money management companies are evolving along with changes in consumer needs and desires. What is a registered investment advisor?
A registered investment adviser (RIA) manages the assets of individuals and institutional investors with a high net worth and sits on the purchase side of the investment field. They must register with the Securities and Exchange Commission (SEC) and in all states in which he or she conducts business. Most RIAs are partnerships or corporations, but individuals can also register as RIAs.
Resource management and resource allocation
A traditionally registered investment advisor probably employs a highly qualified asset manager who can invest clients’ money in individual shares, bonds and other securities. The manager would be a person with sufficient knowledge and experience to analyze balance sheets, profit and loss accounts, annual reports and 10-K forms, powers of attorney and other disclosures to decide which investments are the best long-term risk-tailored options to ensure good returns for clients.
Many RIAs are now more likely to recommend asset allocation strategies to clients and leave specific asset management decisions to third parties. The bosses and employees of these advisory companies are trying to play a central role in satisfying clients’ needs in terms of wealth planning, focusing on things such as managing mandatory payments from retirement accounts, finding the right 529 savings plan for the university, or reassuring clients during stock market crashes. Some investment advisers in this form may have relationships with other professionals, such as tax attorneys and tax accountants, who can help clients create family trusts or reduce property tax burdens through careful planning.
What are the requirements to become a registered investment advisor?
First, the RIA must be “registered” in accordance with the 1940 Investment Advisors Act, which was released shortly after the 1929 stock market crash, to better regulate specialists who gave advice.
The official RIA is determined based on:
- What advice do they offer
- How they are compensated
- Is this their primary professional function (i.e. does most of their income come from investment advice)
However, please note that obtaining registration does not count as SEC’s “support” or “recommendation.” It only means that they disclosed the above-mentioned elements.
RIAs must also disclose any disciplinary action taken against them, and if the company is RIA, it must divide its key officers.
In addition, RIAs must obtain a “Series 65” license by conducting a test called Uniform Investment Adviser Law Examination, which includes laws, regulations and ethics, and a wide range of investment topics. Then they must submit an ADV form annually that updates any conflicts of interest or new activities disciplinary action.