If you are passionate about finance with a strong understanding of investment strategies and a desire to help others reach their financial goals, pursuing a career as an RIA may be for you.
For an experienced finance professional or a recent graduate exploring career options, becoming a Registered Investment Adviser (RIA) is a significant step. By becoming an RIA, one can look forward to a long-lasting and potentially fruitful line of work in the financial industry.
An RIA’s role involves providing personalized investment advice to clients and managing their portfolios while complying with legal and ethical standards. So how do you become a Registered Investment Adviser? What are the requirements?
From educational qualifications to registration procedures, we’ll discuss key aspects of becoming an RIA as you start on this rewarding journey.
An RIA or Registered Investment Adviser can be a company or an individual financial adviser who specializes in providing clients with financial advice. What makes them different from “ordinary” financial advisers? An RIA has a fiduciary duty to act in their clients’ best interests. It’s one of the major obligations of an RIA.
This means that an RIA is obligated to always act in their clients’ best financial interests. This extends to offering the lowest-cost products that fit their needs. Non-RIA financial advisers like broker-dealers are only required to offer suitable financial advice to clients.
This is known as the suitability standard, which entails less responsibility in looking after clients’ interests. The suitability standard means they can offer financial advice that meets a client’s needs without compromising on earning sales commissions or higher fees.
| Suitability standard vs fiduciary standard | |||
| Standard of Care | Broker-dealer | RIA | IAR* |
| Suitability Standard? | Yes | No | No |
| Fiduciary Duty? | No | Yes | Yes |
*Investment Adviser Representative -- someone who works for a large financial institution that is a Registered Investment Adviser.
How important is fiduciary duty? During your career, you may come across some high-profile cases where those entrusted with a fiduciary duty seem to have neglected their responsibility. As you will see in cases like Tibble v. Edison, the fiduciary duty and adhering to the fiduciary standard is crucial.
While RIAs typically give advice on investments, it is also their duty to provide advice related to their clients’ financial goals. Other advice can include estate planning, tax planning, and retirement planning.
Registration with the SEC and state regulation are necessary to ensure that RIAs serve their clients’ interests and adhere to their fiduciary duty. This registration requirement also enables prospective clients to know of an RIA’s violations or legal issues, if any.
When hiring or consulting an RIA, would-be clients can practice due diligence and do background checks on FINRA’s BrokerCheck.
To work as an RIA, you can join a huge financial planning institution with hundreds, if not thousands, of clients. You also have the option to serve as an individual RIA working closely with a small roster of clients.
RIAs must register with either the SEC or the state securities agency. Typically, registration with either regulatory body is acceptable.
If the RIA holds $100 million or more in Assets Under Management (AUM), then they will be required to register with the SEC. Should the AUM be of a lesser amount, registration with the state securities agency is enough.
Becoming an RIA depends on whether it is an individual or a group. An RIA can be a person or a company, like an investment house or brokerage firm that wants the designation.
If an individual financial planner wants to become an RIA, they must do the following:
This is an exam composed of multiple-choice questions designed to measure an aspiring RIA’s financial knowledge. Parts of the test include investment advice and federal securities laws. The Financial Industry Regulatory Authority (FINRA), which issues the securities licenses, administers this exam.
While advisers who take and pass the Series 65 are not required to have other professional degrees or designations, they may consider getting additional credentials. These may be necessary to enhance their knowledge and attract more clients in this competitive field.
Possible designations or certifications can include:
An RIA would need to have at least a bachelor's degree in a relevant field like accounting or finance. In some states, certain designations may even allow you to waive the Series 65 exam as a prerequisite for registering.
The standing rule is that investment advisers must register with the SEC or with their state’s securities agency. Where you must register depends on the size and the amount of assets being managed.
RIAs who have $100 million or more in assets under management must register with the SEC. Meanwhile, advisers with an AUM below that threshold can register with the state securities commission instead.
In states where there are no regulations for advisers, RIAs register with the SEC.
Registering with the SEC or a state securities commission requires an online account with the Investment Adviser Registration Depository (IARD). Doing this allows you to file Form ADV, which is your registration document. Form ADV is a necessary disclosure for clients (current and prospective) using or considering your services.
The form is in two parts:
Once you submit Form ADV, either the SEC or the state securities agency (depending on where you registered) will review it. The agency where you filed may ask for clarification on the information you provided. It’s likely that you will be required to submit a written document detailing your compliance measures and operating procedures.
If your Form ADV and other related documents are approved, you can begin working with clients. You will have to update your Form ADV every year to indicate any changes in your business. This includes updating the number of clients you have and your AUM.
If you registered with your state’s securities agency, you may have to post a surety bond. A surety bond is required if you are unable to meet the guidelines on the minimum net worth.
The steps in having a company become an RIA are slightly different. These are the steps:
Those who own or work for an entity aspiring to become an RIA must still take the Series 65 exam. FINRA must assess your financial knowledge. Some states waive this requirement if you are already a Chartered Financial Analyst (CFA) or a Certified Financial Planner (CFP).
Proceed to incorporating your business either as an S-Corporation (S-Corp) or as a Limited Liability Company (LLC). The latter is favored because this setup can minimize your personal liability. Remember that setting up an LLC does not shield you from prosecution if you violate any securities laws.
Next, file and submit Form ADV with the SEC, since this is an investment company.
Register the firm and all its individual representatives and create compliance documents for your firm’s state of residence. Most company owners hire a consultant for this procedure. Expect the registration process to take 2-3 months.
To hold your clients’ assets and securities, you will need a reputable financial institution. The financial institution (usually a bank) you choose will serve as their custodian, reducing the risk of theft or loss of these assets. Your clients’ securities and assets can be held in physical or electronic form.
RIAs can choose from the best custodians as of 2023, including:
Your choices for custodian are not limited to these firms; mergers and acquisitions of these firms are not uncommon, creating new players in the RIA custodian space.
Assigning a custodian complies with the Investment Advisers Act of 1940, requiring that a separate entity act as an RIA custodian. As an entity separate and independent from the RIA, the custodian must maintain the assets and holdings of an RIA firm. The custodian must also prevent the RIA from abusing or misusing client funds.
After Form ADV is approved, you must then file Form U4 and list all the Investment Adviser Representatives (IARs). Once registration is completed, initial and annual firm filing fees are paid along with IAR fees for all representatives hired by the company. In New York, Minnesota, Wyoming, and Louisiana, IAR fees are waived.
Step 5. Resign from your former employer.
This of course applies if you are working at another company. To avoid any potential legal issues:
Some advisers hire a lawyer to know what information they can legally access and take with them.
There may be instances when an adviser has a fiduciary duty to their former employer; in this case, they cannot take any client information with them.
Also, make sure that you do not violate any non-disclosure agreements, non-solicitation agreements, or non-complete clauses you may have signed with your soon-to-be former employer.
There are lawyers and entire law firms that specialize in assisting financial advisers in setting up an RIA company. In this video, one such attorney talks about the steps involved in putting up an RIA company:
There are many tech tools that RIAs can use to handle the nitty-gritty of providing good investment advice to clients. Client Relationship Management (CRM) systems top the list of tools that RIAs use to better manage their clients’ needs and provide their services.
The advantage of using CRM tools is that it allows RIAs to handle all the work that can be lost to human error. You don’t have to worry about keeping tabs on clients, tracking clients’ portfolios, or taking note of clients’ financial needs and goals. These are all efficiently handled by CRM tools.
Here are some CRM tools that are used and trusted by RIAs:
When you are passionate about helping others with their wealth management, the challenges and complexities of becoming an RIA seem insignificant. The only possible downside to becoming an RIA is working to provide solid financial services while adhering to the fiduciary standard.
The career of a Registered Investment Adviser is perfect for those who feel good about giving sound financial advice. Those who also enjoy helping clients reach their financial goals will find fulfillment in this role. This is apart from other benefits of an RIA career, like flexible work schedules, control over their careers, and high compensation.
Learn more about how to register as an RIA here.
Does becoming an RIA appeal to you? Visit our section on RIAs for more resources, news, and guides to support you in this exciting career.
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