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Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Updated July 07, 2024 Reviewed by Reviewed by Marguerita ChengMarguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.
Fact checked by Fact checked by Ryan EichlerRyan Eichler holds a B.S.B.A with a concentration in Finance from Boston University. He has held positions in, and has deep experience with, expense auditing, personal finance, real estate, as well as fact checking & editing.
Part of the Series Guide to Hiring a Financial AdvisorBasics of Working with a Financial Advisor
The Right Advisor for You
The Investopedia 100
Working with a Financial Advisor
A registered investment advisor (RIA) is a financial professional or firm that advises clients on securities investments and may manage their investment portfolios.
A registered investment advisor (RIA) is a financial professional firm that advises clients on securities investments and may manage their financial portfolios. RIAs are registered with either the Securities and Exchange Commission (SEC) or state securities administrators. RIAs have fiduciary obligations to their clients, which means they have a fundamental duty to always and only provide investment advice that is in the best interests of their clients.
As noted above, a registered investment advisor is a financial professional or financial services company that offers clients investment advice for a fee. They are governed by financial ethics that compel them to act responsibly and in the best interests of their clients.
The rules on investment advisors were formulated by the Investment Advisers Act of 1940. This law requires individuals or businesses that dispense professional investment advice to register with the SEC, although there are exemptions for smaller firms. Advisors might also be considered qualified professional asset managers (QPAMs).
Investment advisors who manage a minimum of $25 million in assets are permitted, although not required, to register with the SEC. It becomes mandatory for firms that manage $100 million or more, as RIAs managing at least that amount are required quarterly to reveal holdings to the SEC. Investment advisors who manage smaller sums of investment money are typically required to register with state securities authorities.
RIAs provide more services than just investment advice. Their services and advice may cover the following:
RIAs must follow certain practices and procedures when furnishing advice to their clients. The table below highlights these responsibilities.
| SEC Registration | RIAs with more than a certain level of AUM are required to register with the SEC, as well as a state governing body depending on the location and the number of clients. |
| Disclosure | RIAs are required to disclose any risks or possible conflicts of interest regarding the specific transactions that they recommend to their clients and ensure that the client understands any risks. |
| Assuming the Burden of Proof | If a client confronts an RIA about an investment, the RIA bears the burden of proof—meaning that the RIA must prove that the risk was disclosed and that the investment could be considered in the client's best interest. |
| Fiduciary Duty | RIAs must act as fiduciaries, meaning that they must act in clients' best interests and avoid any conflict of interest concerning products and services offered to them. |
| FINRA Compliance | RIAs must meet certain compliance requirements with the SEC and the Financial Industry Regulatory Authority (FINRA). In addition to providing online applications for RIA registration, the SEC requires Form ADV to be filed. |
| Documentation | RIAs must maintain extensive documentation in compliance with SEC record-keeping regulations. |
Registering as an RIA does not imply any recommendation or endorsement by the SEC or any other regulator. It means only that the investment advisor has fulfilled all that agency’s requirements for registration. Registering with the SEC requires disclosing information that includes the following:
RIAs must update their information annually on file with the SEC, and the information must be made available to the public.
An RIA is a company that offers financial guidance to clients. An investment advisor representative (IAR) is a person who gives financial advice. The RIA can have many employees, including several IARs, or it can be just one person who is both the RIA and the IAR. The IAR thus works for the RIA and provides the actual financial services to the clients.
RIAs differ from broker-dealers in essential ways. RIAs advise on all finance-related matters, including investments, taxation, and estate planning. Broker-dealers tend to focus more narrowly on facilitating purchases and sales of assets like stocks.
RIAs are expected to act in a fiduciary capacity when they interact with their clients. Broker-dealers, on the other hand, are only required to satisfy the suitability standard. Clients of RIAs can be assured that their advisors always and unconditionally put their best interests first. Clients of broker-dealers need to be aware that the broker-dealer is permitted to dispense advice that is merely suitable for their client’s investment portfolios.
Unlike RIAs, broker-dealers are not required to disclose potential conflicts of interest or inform their clients about less expensive or more tax-efficient investment alternatives.
The following are some common fee structures for investment advisory firms:
Always do some careful research before selecting an investment advisor. You need a firm that is aligned with your interests and needs. An excellent source and starting point is the SEC’s Investment Adviser Public Disclosure website, which allows you to search for every RIA in the country.
When choosing an RIA, you hire the financial firm you will be working with—not necessarily an individual advisor (unless that's how they operate). Investment advisor representatives are the individuals who work for the RIA and directly provide advice to clients. An RIA may have just a single advisor or several IARs, each with its own areas of expertise and approach to investing.
Therefore, when selecting an RIA, you're not just choosing a firm but potentially also among the individual IARs within that firm. Ensure that you understand the RIA's philosophy and standards and the specific skills and qualifications of the IAR who may be handling your portfolio.
Once you select those firms that fit your location requirements, you can review each firm’s website and social media for information on the types of services offered, the registration, the representatives, and the total amount of money managed by the RIA.
The type and level of advice that RIAs provide can vary widely from firm to firm, so make sure the areas on which they focus fit your needs. This means that you shouldn't
RIA firms are required to file SEC Form ADV, which is the uniform form used by investment advisors to register with both the SEC and state securities authorities. The form, which should be offered to you by the firm in which you are interested, provides detailed information about the firm, from fees and client types to assets under management and more.
To check the record of an advisor, you have two major sources for information:
Search the total AUM of the firm in which you are interested by using the SEC’s Investment Adviser Public Disclosure website and compare them with yours to see if your assets are on the low or high side for the firm. You can find this information directly on the company's website, its financial disclosure forms, or its annual report.
First, RIAs are legally obligated to act in your best interest. They also tend to provide
more personalized services. Since they aren't paid on commission, they don't have an incentive simply to deal with only when selling something. RIAs typically have transparent fee structures, often charging a percentage of assets under management or a flat fee, which aligns their interests with yours. Finally, most RIAs offer a broad range of financial planning services that address a wide range of needs.
A firm can register as an RIA by filing Form ADV with the SEC. Within 45 days of the filing, the SEC must either grant registration or begin proceedings to deny it. In addition, RIAs are also required to abide by the “brochure rule,” which requires them to inform clients with information about their practice, educational, and business backgrounds. RIAs must also maintain accurate books and records, subject to examination by the SEC.
RIAs may register with the SEC if they manage at least $25 million in assets, and are required to do so if they manage more than $100 million. Investment advisers managing smaller amounts of money are typically required to register with state-level agencies.
Demand for RIAs is growing, with the expectation that about a third of the market will be managed by RIAs by 2027. Although you don't need to work with one, if you decide to hire an RIA, that advisor doesn’t even need to be human. You have a choice of robo-advisors—automated software tools that dispense investment advice based on information about yourself and the investment preferences that you provide. The availability of this technology has further lowered the price of working with an RIA.
