What
is a "Registered Investment Advisor"?
Registered Investment Advisors
["RIAs"] are specialists in the management of financial security portfolios.
Many of the thousands of Registered Advisors supervise assets for mutual funds,
pension plans, and institutional clients. The remaining RIAs are in "private
practice"... providing personalized investment service to individuals, trusts, and
small business clients.
Here are the facts about what it
takes to become and remain a Registered Investment Advisor and the roles that regulatory
agencies perform for RIA clients... |
 | U. S. Government registration of Advisors began with
the 1940 Investment Advisors Act. Today, Advisor regulations are one of the
most fully developed codes for financial practitioners in the world. |
|
| Starting in
2012, Federal Advisor
registration by the U.S. Securities and Exchange Commission ["SEC"]
is
limited to firms with assets of about $100 million or more under "continuous and
regular" management. The majority of RIA firms,
however, supervise less than this amount and are regulated by State
Security Administrators. |
|
| State and Federal
registration requires
disclosure on Form ADV of an Advisor’s... investment analysis methods, types
of investments used, number of clients, services offered, compensation methods, account
management methods, key employee education and work histories, disciplinary history,
brokerage selection and commission policies, affiliations with external organizations,
paid client referral arrangements, and potential conflicts of interest. RIA clients must be
offered a copy of Form ADV, Part 2 or
its equivalent annually.
 As
of September 2001, you can read the full text Form ADV filing for every
Registered Investment Advisor at: SEC
Investor Advisor Public Disclosure Website |
|
| Both Federal- and
State-registered Advisors are subject to unannounced inspections of their operations by
regulatory authorities! Inspections are typically extensive reviews against stringent record-keeping regulations, advertising restrictions, "due
diligence" rules, and anti-fraud provisions. [One example of the rules RIAs
live by... an Advisor cannot use testimonials from satisfied clients to market its
services!] |
|
| Advisors with managed assets less than
$100
million are almost always required to register with the State (or States) in which they
serve clients or have a physical presence [offices; staff]. State registration typically
requires passage of standardized tests;
disclosure of key employee education and work histories; disclosure of business or personal legal
sanctions; and financial statements. In some cases, employee fingerprinting is
required. |
|
| Advisors must
be registered or make
"notification filings" in any State where they have an office.
They must also register in most States if they have more than
five clients there.
Each "representative" of an RIA firm and at least one "investment
principal" must be identified and qualified in State filings. ["Principal"
designation typically requires testing and disclosure procedures like those listed in the
preceding paragraph.] |
|
| Registration documents filed by Advisors
on the IARD System are public records available to prospective clients and all citizens.
Most Advisor filings are now posted on the Internet by the Financial
Industry Regulatory Authority [FINRA]. In addition, the SEC and most State regulators respond to
citizen inquires about the disciplinary history of any RIA in their jurisdiction. |
|
THE
SHORT ANSWERS...
(1) Essentially all
long-lived Investment Advisors must have the knowledge and experience to attract
substantial assets to their portfolio management businesses.
(2) RIA firms are subject to
some of the most stringent disclosure and oversight rules in the financial services
industry.
(3) More than 70 years of
regulatory development has provided many safeguards for clients of Registered Investment
Advisor firms. (4)
Investment Advisors are "fiduciaries" with a legal obligation to
act in your best interests. This is a more stringent requirement than most
stockbrokers, insurance agents and financial planners must meet. |
