A Registered Investment Advisor (RIA) is a person or firm that provides financial advice and services to clients in exchange for compensation. To become an RIA, individuals must pass the Series 65 or 66 examinations, obtain a license, and may need to register with the United States Securities and Exchange Commission (SEC). They must also comply with the Investment Advisers Act of 1940, other applicable laws, and any regulations imposed by state or local authorities.
The concept of the RIA dates back to the 1930s when the U.S. government began regulating financial markets in response to the stock market crash of 1929. The Investment Advisers Act of 1940 protected investors by requiring advisors to register with the SEC and follow certain principles.
The government amended the act several times, most notably in 1996 when Congress passed the National Securities Markets Improvement Act (NSMIA). This legislation reduced the regulation of advisors that manage less than $25 million in assets, making it easier for small firms to become RIAs.
RIAs manage their clients’ investments, provide financial advice, and keep their assets safe. To do this, they must thoroughly understand the markets, stay up-to-date on economic news, and select appropriate investments for each client. They should also research potential investments and monitor their performance regularly.
RIAs are responsible for providing accurate and timely disclosures, maintaining complete records of all transactions, and preparing financial statements. Here are some additional responsibilities they undertake:
Registered Investment Advisors must adhere to certain principles to remain compliant with regulations. These are some of the most notable rules and principles affecting their work:
Registered Investment Advisors make money by charging fees for their services. These fees can take several forms, including a percentage of assets under management, an hourly fee, or a flat rate. RIAs may also receive commissions from asset managers or lenders for selling their products to clients.
Let’s take a closer look at the fees clients might pay:
An automated message capturing and archiving service can help RIAs stay in compliance with regulations by providing a secure platform to store all communication records. This helps protect client data and ensures that all communication is securely stored. With an automated message capturing service, RIAs can ensure they follow the rules created by governing bodies like FINRA, SEC, CFTC, and others. This includes requirements such as maintaining accurate records and accepting the burden of proof.
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