The short answer
A registered investment adviser, or RIA, is a firm that is paid to give advice about investments and is registered with a securities regulator: either the U.S. Securities and Exchange Commission (SEC) or one or more state securities regulators. The federal law that governs advisers, the Investment Advisers Act of 1940, spells the word “adviser,” though most people write “advisor.” The professionals who give advice on the firm’s behalf are called investment adviser representatives.
Who regulates an RIA?
Which regulator an adviser registers with depends mostly on its size. Advisers with less than $100 million in regulatory assets under management generally register with the securities regulator in their home state. Advisers with $110 million or more generally must register with the SEC, and those in between may choose either. Either way, the adviser owes its clients the same federal fiduciary duty.
What “fiduciary” means
An investment adviser owes its clients a fiduciary duty. The SEC describes it as two duties working together: a duty of care, which means giving advice that is in the client’s best interest based on a reasonable understanding of the client’s goals and situation, and a duty of loyalty, which means not putting the adviser’s own interests ahead of the client’s and fully disclosing any material conflicts. The duty applies to the whole advisory relationship, not just a single recommendation.
How an RIA differs from a broker
Broker-dealers buy and sell securities for customers and are usually paid a commission on each transaction. When a broker recommends a security to a retail customer, the SEC’s Regulation Best Interest requires the recommendation to be in the customer’s best interest at the time it’s made, but it doesn’t require the broker to keep monitoring the account afterward. An adviser’s fiduciary duty, by contrast, generally covers the entire relationship. Some professionals are registered as both, so it’s fair to ask in which capacity someone is acting when they make a recommendation.
How RIAs are paid
Many advisers charge a fee based on a percentage of the assets they manage. Others charge a flat fee, an hourly rate, or a fixed fee for a financial plan. Every arrangement carries some conflicts of interest, and an adviser is required to disclose its fees and conflicts in writing.
Documents you’re entitled to see
Every registered adviser files Form ADV with its regulator. Two parts are written for clients:
- Form ADV Part 2A, often called the brochure: a plain-English description of the firm’s services, fees, conflicts of interest, and any disciplinary history. An adviser must give it to you before or when you enter into an advisory agreement.
- Form ADV Part 2B, the brochure supplement: background on the individuals who will advise you, including their education and business experience.
How to check an adviser
You can look up SEC-registered advisers and most state-registered advisers, along with the individuals who work for them, on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov. It shows a firm’s registration, its Form ADV, and any disciplinary history. FINRA’s BrokerCheck does the same for brokers.
Questions worth asking any advisor
- In what capacity are you making this recommendation, and are you acting as a fiduciary when you make it?
- How are you paid, and does your firm earn money from my account in any other way?
- What services does your fee include?
- Who holds my assets?
- May I have a copy of your Form ADV Part 2A?
How this applies to Rice Wealth
Rice Wealth Management Group is a registered investment adviser with the State of New Jersey Bureau of Securities. Our Form ADV Part 2A, available on our Disclosures page, describes our services, how we’re paid, our conflicts of interest and how client assets are held. Our public record is on adviserinfo.sec.gov under CRD #308210, and we welcome any of the questions above.
Sources
- SEC Investor.gov: Investment Adviser (glossary)
- SEC Investor.gov: Investment advisers (registration thresholds)
- SEC: Standard of Conduct for Investment Advisers (Release IA-5248, 2019)
- SEC: Regulation Best Interest (Release 34-86031, 2019)
- SEC: Form ADV general instructions
- SEC Investor.gov: Using Investment Adviser Public Disclosure
- New Jersey Bureau of Securities
This guide is for general educational purposes only and is not personalized investment, tax, or legal advice. Limits and rules change; figures reflect the published guidance available on the review date. Please consult a qualified professional about your own situation.
Rice Wealth Management Group is a registered investment adviser with the State of New Jersey Bureau of Securities and other states where required and/or exempt from registration. Registration as an investment adviser does not imply any level of skill or training.