Being a registered investment advisor isn’t easy. You may have chosen this profession because you have great business and investment sense, a drive to help others manage their wealth, and a desire to build a solid financial foundation of your own. But working in this industry also requires strict adherence to a slew of complex and exacting guidelines. And without understanding RIA Compliance 101, following those guidelines is more than challenging.
Hiring a compliance consultant can help make your life easier. But it’s not enough to hire someone to do compliance for you. You need to understand it yourself and take steps to make sure it gets done and done right. Meeting the challenges of RIA compliance is part of the job, but that doesn’t mean the process can’t be made easier.
Rather than spending your off-hours Googling industry terminology, here are a few RIA Compliance 101 definitions to get you started.
SEC (Securities and Exchange Commission)
RIA compliance is adherence to the Investment Advisors Act of 1940 under the supervision of the SEC, which was created under the Securities Exchange Act of 1934. These are living documents that continue to be amended and updated to reflect modern trading practices.
Your state may also have its own rules for RIAs. If you do business in more than 14 states and/or manage funds of $100 million, you have the option of registering with the SEC. At $110 million, however, you must register.
Form ADV
What the 1040 is to personal income taxes, Form ADV is to your firm’s RIA compliance.
This yearly form has two parts. The first is specifically for regulatory purposes. You fill in the blanks with information about your firm, the amount of money you manage and other requested facts. The SEC and/or your state authority uses this information in their enforcement activities. In plain English, they use it to decide whom to audit.
The second part is for your clients and potential clients. This “brochure” portion requires RIAs to write easy-to-understand narratives detailing their services offered, amount of funds managed, fee schedule, conflicts of interest and more.
RIA Compliance Group has an excellent introduction to Form ADV here.
CCO (Chief Compliance Officer)
Under SEC regulations, each RIA firm is required to have a CCO, someone who is in charge of compliance for that firm. You don’t have to hire someone just to oversee compliance. The CCO can have other responsibilities, but it is important that they have a good working knowledge of SEC compliance and the time needed to maintain compliance standards for the firm.
In the SEC’s own words, “An adviser’s chief compliance officer should be competent and knowledgeable regarding the Advisers Act and should be empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm. Thus, the compliance officer should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.”
So, choose wisely. Make sure your compliance officer is knowledgeable, experienced, and has authority in your organization. And be prepared to back up your CCO if certain requirements are unpopular with your team.
AUM (Assets Under Management)
Sometimes called Funds Under Management, AUM measures the market value of all financial assets managed by an RIA. This is an important number, and it’s important to keep it current because a change can trigger new reporting and compliance requirements for your RIA firm, and discrepancies can trigger an audit. Mentions of AUM in marketing materials should always reflect the most recent valuation.
The SEC cracks down on AUM reporting discrepancies for several reasons. Some firms have been caught overstating AUM to attract more lucrative clients. Others are caught understating to avoid SEC reporting requirements.
Fiduciary Duty and Conflict of Interest
When you assume management of a client’s wealth, you are required to leave self-interest at the door and represent that client’s interests with competence and loyalty. That is fiduciary duty. Violating fiduciary duty can get you in big trouble with the SEC.
In many cases, conflicts of interest take the form of the temptation to act in your own best interest instead of the client’s. For example, take a look atthis high-profile case from December 2015, in which one of the largest financial institutions invested clients’ money in their own products.
Also note that it is not against SEC regulations to have a conflict of interest. It is against those regulations to avoid disclosing it. Your clients need to be aware so they can make informed decisions about their own wealth management.
Fiduciary responsibility and conflict of interest don’t just apply to you; they apply to everyone working in your firm. Check in with your team regularly to make sure everyone is complying with these rules.
While each RIA needs to take responsibility for knowledge of RIA compliance, there are ways to automate daily compliance tasks. A turnkey solution like SmartRIA can streamline and simplify compliance for you, your CCO, and the rest of your employees.
Editor’s Note: This post was originally published in 2016. It has been updated for accurate content.
FAQs
RIA compliance is adherence to the Investment Advisors Act of 1940 under the supervision of the SEC, which was created under the Securities Exchange Act of 1934. These are living documents that continue to be amended and updated to reflect modern trading practices. Your state may also have its own rules for RIAs.
How much does it cost to get RIA compliance? ›
RIA Registration assistance
Most solo-advisory firms that work with us will pay around $4,000 in compliance consulting fees. These fees cover the firm and individual representative registration and creation of the compliance documents for a single state. You can view our RIA registration package here.
What is RIA disclosure requirements? ›
What Are RIAs Required to Disclose?
- Types of advisory services offered.
- Schedule of the fees associated with those services and whether those fees are negotiable.
- Other sources of compensation received beyond service fees.
- Professional affiliations with another advisor or broker-dealer, or a securities issuer.
Outsourced Compliance and General Counsel Services
Fixed fee, typically ranging from $20,000 to $120,000 depending on the scope of services. Rates are subject to negotiation.
Is RIA mandatory? ›
Understanding Registered Investment Advisors (RIAs)
This law requires individuals or businesses that dispense professional investment advice to register with the SEC, although there are exemptions for smaller firms.
Do I need a Series 7 to be an RIA? ›
Series 7 for RIAs
Passing the Series 7 exam alone will not qualify you to become an advisor working for an RIA. The relevant exam for prospective advisors is the Series 65 exam. The Series 65 is the most widely accepted credential for investment advisors and the typical first step to becoming an advisor.
How do I get RIA certified? ›
RIAs must pass the Series 65 exam. RIAs must register with the SEC or state authorities, depending on the amount of money they manage. Applying to become an RIA includes filing a Form ADV, which includes a disclosure document that is also distributed to all clients.
Does RIA have to register with finra? ›
FINRA. The Financial Industry Regulatory Authority (FINRA) is an independent, non-profit organization that self-regulates broker-dealer firms. It does not regulate RIAs, but if an RIA firm's business includes broker-dealer services, it would fall under FINRA as well as the SEC or state RIA compliance.
How much does agent compliance reviewer RIA make? ›
Ria Compliance Officer Salary. $57,000 is the 25th percentile. Salaries below this are outliers. $113,500 is the 75th percentile.
How much assets do you need to start RIA? ›
The threshold for registering with the SEC is holding $100 million in assets under management (AUM). Most new RIAs will not reach this when starting out, which means they must register with the state of their principal place of business. To register, advisors must file Form ADV.
A qualified client is an investor that is exempt from the provision of the Investment Advisers Act of 1940. This act prohibits private investment funds from charging performance-based fees.
Does an RIA need a custodian? ›
RIAs must depend on qualified custodians to operationalize their client's investment plans, so the relationship between advisory firm and custodian is an essential one. The choice of custodian is therefore critical for RIAs, especially given that the custodian often interacts directly with the RIA's clients.
What is the downside of RIA? ›
RIAs are required to pay for their own licensing and compliance assistance. Marketing costs are not subsidized by an employer either. RIAs are also limited in their financial product offerings. They cannot sell commission-based products such as variable annuities and other insurance products.
What is the average profit margin for an RIA? ›
Riding the wave of a record-breaking stock market, profits at registered investment adviser firms shot up to record levels in 2021, with the typical advisory firm producing an average operating profit margin of 30.6% — much higher than in any of the past five years, according to data from InvestmentNews Research.
How much does compliance cost per employee? ›
The cost of regulatory compliance is substantial. According to the Competitive Enterprise Institute, large companies are reporting that the average cost of maintaining compliance is up to $10,000 per employee.
Does RIA ask for Social Security number? ›
In addition, depending on the services requested and/or the amount of your money transfer, Ria may also collect and may disclose personal and nonpersonal information, such as date of birth, Social Security number or other identifying number (including type, issuer, and expiration date), credit card information ( ...
How does RIA verify identity? ›
Ria uses Plaid's instant verification technology to link your bank to your account. It's both secure and private — and lets you send within minutes.
What is the difference between RIA and non RIA? ›
RIAs have a fiduciary duty to their clients.
This means they're obligated to always act in your best financial interest and to offer the lowest-cost products that fit your needs. Non-RIA financial advisors, such as broker-dealers, may only have to offer advice that is suitable to clients.
Can I keep my Series 7 without a sponsor? ›
Eligibility. Candidates must be associated with and sponsored by a FINRA member firm or other applicable self-regulatory organization (SRO) member firm to be eligible to take FINRA representative-level qualification exams.
How hard is the Series 7 exam? ›
Is the Series 7 Exam Difficult? Clocking in at 125 questions to be answered in three hours and 45 minutes, the Series 7 exam is considered the most difficult of all the securities licensing exams. The minimum passing score is 72, which may not seem that difficult.
The Bottom Line. Passing the Series 63 exam for registration within a state is a requirement for all registered representatives. Those who wish to be IARs must pass the Series 66 exam and the Series 7 exam.
How long does it take to start an RIA? ›
While it may only take a month or two to get a firm registered as an RIA, typically advisors take about six months to fully complete the transition. Depending on the complexity of your business model, however, this timetable can be expanded or compressed down to weeks or even days. Keep your plans confidential.
Does Walmart use RIA? ›
Walmart2Walmart Powered by Ria is the best way to send money from the United States to participating locations within the United States, Puerto Rico, or Mexico. Send money for cash pickup at one of the participating 4,500+ US & Puerto Rico Walmart locations, or 2,500+ Mexico Bodega Aurrera & Walmart locations.
Is the Series 65 exam hard? ›
For students who have recently completed the Series 7, this is a moderately difficult exam. The Series 65 is more challenging for students who have not completed the Series 7. It's recommended that students learn through a variety of methods, such as reading, as well as continuous practice exams.
What does an RIA stand for? ›
A Registered Investment Advisor (RIA) is an individual financial advisor or a company that provides its clients with financial advice. Unlike other types of financial advisors, RIAs have a fiduciary duty to act in your best interest.
What is the purpose of an RIA? ›
Registered investment advisors (RIAs) manage the assets of high-net-worth individuals and institutional investors. RIAs can create portfolios with individual stocks, bonds, and mutual funds; they may use a mix of funds and individual issues or only funds to streamline asset allocation and cut down on commission costs.
What does RIA stand for in it? ›
Definition of Rich Internet Application (RIA) - Gartner Information Technology Glossary.
What does RIA stand for in law? ›
Frequently Asked Questions. A Registered Investment Advisor (RIA) is an Investment Advisor registered with the Securities and Exchange Commission or a state's securities agency. The term was popularized by the numerous references to RIAs within the Investment Advisors Act of 1940.
What is the difference between broker and RIA? ›
Independent broker-dealers function as full-service brokerage firms but remain free from the constraints and demands of a large Wall Street company. RIAs are independent fiduciaries who may associate with several broker-dealers, selling a range of products and services.
What is the difference between a registered representative and a RIA? ›
Registered Investment Adviser
In general, RIAs use the same investments offered by the registered representative. But instead of buying and selling investments for a commission, investments are managed for an advisory fee. A RIA can be a stand-alone independent firm or part of a large financial institution.
The RIA market is exceptionally diverse. There are more than 5,000 firms ranging in size from gigantic (more than US$150 billion in AUM) to very small (less than US$25 million in AUM).
What are the benefits of working with an RIA? ›
An RIA can assist you in multiple ways, including the following:
- An RIA Is Legally Bound to Work for Your Benefit. ...
- Most RIAs Earn Asset-Based Compensation. ...
- RIAs Must Maintain Public Business Records. ...
- RIAs Focus on the Client. ...
- RIAs Usually Have a Helpful Professional Network.
How to grow your RIA business
- Referrals. The majority of RIAs bring in new clients primarily through word of mouth. ...
- Mergers and acquisitions. ...
- Outbound marketing. ...
- Website that converts. ...
- Search engine optimization. ...
- Social media.
How to become an RIA
- Step 1: Pass the Series 65 exam. ...
- Step 2: Register with your state or the SEC. ...
- Step 3: Set up a business. ...
- Step 4: Choose a custodian. ...
- Step 5: Invest in technology. ...
- Step 6: Complete the transition to becoming an RIA.
An RIA custodian is an institution that maintains the client assets and holdings of a registered investment advisor (RIA). RIAs give their clients financial advice, which may include direction on investments, but they do not carry out the trades involved in their plan.
When you assume management of a client’s wealth, you are required to leave self-interest at the door and represent that client’s interests with competence and loyalty. That is fiduciary duty. Violating fiduciary duty can get you in big trouble with the SEC.
