What is a Registered Investment Advisor?

Katie DuncanMay 20, 2022

Reviewed By: Amplify

Cartoon man doing calculations

It’s no secret that smart investing and successful money management are two keys to building wealth for your future.

But managing money and planning your financial future isn’t always straightforward. That’s why nearly 61 million people have chosen registered investment advisors to manage over $110 trillion in assets for them.

But what, exactly, does this type of advisor do? In this article, we’ll break down what it means to be a registered financial advisor and how they might be able to help you build your financial future.

Talk to a CFS* Financial Advisor

Want to take your retirement plans to the next level? Schedule a Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

What is a registered investment advisor?

A registered investment advisor, also known as an RIA, is a type of financial advisor or firm that provides financial and investment advice to its clients.

RIAs are registered with either the U.S. Securities and Exchange Commission (SEC) or a state-level authority. In order to register, an advisor must meet initial and ongoing requirements. Part of the ongoing requirement is to disclose information regarding:

  • Total client assets under management
  • Investment strategies and styles
  • Fee structure
  • Past disciplinary action and disclosures
  • Potential conflicts of interest

All of this information is available on the SEC website or your state security administration website, which makes comparing RIA firms and advisors easy.

What is a fiduciary relationship?

RIAs are different from other types of advisors in that their client relationships are fiduciary, which means that they are required to act and give advice that is in the client’s best interest. This also means that RIAs:

  • Are required to ensure that investment advice is accurate to the best of their knowledge
  • Have a duty to keep efficiency and cost in mind when executing trades
  • Should disclose if there is a conflict of interest
  • Cannot engage in activity that goes against their clients’ consent

If a registered investment advisor breaches their fiduciary duty, the SEC may bring enforcement action against them.

Who can use a registered investment advisor?

Traditionally, RIAs mainly focused on high-net-worth individuals. However, that is beginning to change as more and more people look to these professionals to help them grow their wealth from modest starts. Today, you can find RIAs that are willing to work with anyone, regardless of how much they have.

What does a registered investment advisor do?

A registered investment advisor can do far more than just help invest your money in the stock market. Here’s a glance at what an RIA may be able to do for you:

Asset Management

One of the main things RIAs do for their clients is asset management. By knowing and understanding the unique financial needs of their clients, they can help create custom portfolios that match those goals and react accordingly to market conditions.

Retirement Planning

Having enough money for a comfortable retirement is a major financial goal for many investors. An RIA can help you anticipate how much money you’ll need in retirement and work with you to formulate a plan that may meet your goals.

Estate Planning

Planning to leave money and other assets to your heirs? Estate planning services provided by RIAs may help you organize your estate in a way that makes handling your affairs after your death easy for your heirs.

Financial Planning

Outside of retirement and estate planning, an RIA can help you reach other financial goals, like buying a house or saving for your child’s college education.

Reporting and Record-Keeping

One often-overlooked way that RIAs offer value to their clients is through reporting and record-keeping.

Before hiring an RIA, be sure to ask about all of the services they offer.

Why work with an investment advisor?

In today’s financial landscape, there are many options when it comes to wealth management, and each has their own unique advantages and disadvantages. People often choose to work with a registered investment advisor for one (or more) of the following reasons:

  • Registered investment advisors are legally bound to work for the benefit of their clients: For many, the fiduciary relationship between an RIA and their clients is the biggest draw.
  • They must maintain and publish their business records: Value transparency? Registered investment advisors are held to a higher standard and are required to report key business information in order to remain registered.
  • They are compensated based on the assets they manage: Many RIAs are motivated to grow your wealth because the more you earn, the more they earn. We’ll discuss their fee structures in more depth in a bit.

Because of their increased commitment to transparency and accountability, RIAs are often seen as more trustworthy than types of investment professionals.

How does a registered investment advisor get paid?

While an RIA can help you build wealth, their services are not free. There are several different ways that a registered investment advisor can charge fees:

Flat Percentage

RIAs commonly charge a flat percentage of your overall portfolio value, typically around 1% of your assets under management (AUM).

Tiered Percentage

They may also use a tiered-percentage method. For instance, a client may pay 1% on their first $1 million and .75% for any amount beyond that.

Flat Annual Retainer

Instead of paying a percentage of your portfolio, some RIAs charge a flat retainer fee, regardless of AUM value.

Hourly Fees

Other advisors may charge an hourly fee. This fee typically applies to investors who are seeking advice but don’t have enough capital to invest yet.

Because RIAs have a fiduciary relationship with their clients, the fee structure reflects their duty to clients. In other words, registered investment advisors are usually not paid on commission. Commission structures may encourage advisors to perform actions that aren’t in their client’s best interests. If an RIA does sell products that earn them a commission, they are required to disclose that conflict of interest.

The Bottom Line

A registered investment advisor is a financial professional that may be able to help you in several areas of investment and money management— asset management, retirement planning, estate planning, general financial planning, and more. Before committing to working with a financial advisor, always be sure to do your research, read reviews, and check their credentials and registration online on the SEC website.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer Member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Talk to a CFS* Financial Advisor

Want to take your retirement plans to the next level? Schedule a Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.