What Is A Registered Investment Advisor?

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What Is A Registered Investment Advisor?

When you are looking to invest a substantial amount of money in the stock market, you will encounter several industry-specific terms that are important to understand before you contract the services of a wealth management firm.

In this article, we will explain what a registered investment advisor is and list the required qualifications for a registered investment advisor (RIA). We will also share some advice for choosing the best RIA in Austin for your wealth management needs.

What Is A Registered Investment Advisor?

In the United States, a registered investment advisor is a person or firm that provides advice to clients about buying and selling securities. In return for this service, the RIA is entitled to charge a fee which could be a percentage of the assets under management (AUM) or a per-hour fee.

While all RIAs must register with their state authorities, firms that manage $100 million and above must also register with the Securities and Exchange Commission (SEC). RIA firms can be limited liability companies, limited partnerships, or another kind of business entity.

What Makes A Registered Investment Advisor Different?

Representing just one kind of investment service, RIAs are different from other investment professionals like stockbrokers because they are legally bound by a fiduciary duty to their clients. This means they must put their clients’ best interests above their own and do not receive commissions from the investment services they recommend to their clients.

In contrast, a stockbroker who deals with taxable accounts is only bound by a “suitability” requirement. This means they must recommend stocks that are suitable for the client’s requirements but may not put the best interests of the client in first place.

What Are the Qualifications Required to Be A Registered Investment Advisor?

To be registered as an RIA with the Securities and Exchange Commission, each representative of a wealth management firm has to meet the licensing requirements of the regulatory body which oversees the firm. Typically, this will include the Series 65 or Series 66 and Series 7 examinations. If the person is a Certified Financial Planner (CFP) or a certified Chartered Financial Analyst (an advanced professional qualification), the additional examinations required of an RIA can often be waived.

What Does A Registered Investment Advisor Do With My Assets?

In the wealth management industry, services are typically divided up between asset management and asset allocation. While these two roles were traditionally performed by the same company, many RIAs in Austin and around the country now outsource the act of investing the money to a third party.

The main difference between asset management and asset allocation when learning what a registered investment advisor does is that the asset manager (usually the RIA) recommends possible strategies of asset allocation to their clients, while informing the clients about the potential risks and benefits of each strategy. The company division (or third-party company) responsible for asset allocation then invests the client’s money according to the strategy chosen, taking into account a thorough analysis of:

  • Balance sheets
  • Income statements
  • Annual reports and 10-K forms
  • Proxy statements
  • Other disclosures

The analysis of these sources of information allows the party responsible for asset allocation to choose risk-adjusted opportunities that will provide the best returns for each client.

What Else Is A Registered Investment Advisor Responsible For?

In addition to recommending investment strategies, an RIA often assists clients with their other wealth planning needs, including the following:

To provide clients with the best possible service, RIAs in Austin typically have relationships with other financial professionals such as tax accountants and tax attorneys who can help with the technical details of setting up a family trust or sort through estate planning issues.

At ML&R Wealth Management, we focus on an evidenced-based investment philosophy that relies on achieving diversification, controlling costs, and managing appropriate levels.

What Does A Registered Investment Advisor Charge?

United States hundred dollar bills.

In exchange for managing your assets, many registered investment advisors will charge a fee proportional to the assets under management (AUM). This is how ML&R Wealth Management operates. Other wealth management firms may operate differently, such as through an hourly rate.

What Is Important When Looking for A Registered Investment Advisor?

When looking for an RIA, there are several questions you should ask:

What is your payment structure? The RIA should work on a fee-only basis and not receive commissions for recommending other companies’ investment services to you.

What is the registered investment advisor’s philosophy? The philosophy of the firm should be congruent with your own.

Where does the firm invest? The owners, partners, and staff of the Austin RIA firm should have significant sums of money invested in the same securities and using the same strategies as the ones they are recommending to you.

Where will my funds be held? The RIA should keep your capital safely in the hands of a third-party custodian, such as a bank trust department. The third party must have an impeccable balance sheet and charge reasonable custody fees.

What qualifications do your registered investment advisors have? Some firms might have Certified Financial Planners as well as IARs, Independent Advisor Representatives. It is good to know this before you sign on with the firm.

What is the process if my registered investment advisor retires or moves on? The right firm should have a shared philosophy across the team and also have a solid plan for succession.

Trust the Austin IAR Professionals with ML&R Wealth Management LLC

Now that you know the answer to “What is a registered investment advisor?” and “What qualifications does a registered investment advisor have?” you are ready to find the right RIA for your investment needs. At ML&R Wealth Management, we provide fee-only wealth management services that focus on evidence-based investment strategies and keep your goals and values forefront and center. In addition to providing financial services to individuals, couples, and families, we also offer investment and fiduciary services to nonprofits and corporate 401(k)s.

Improve your relationship with your registered investment advisor and learn more about wealth planning by contacting the ML&R Wealth Management team today!

About Author

ML&R Wealth Management

As Chief Compliance Officer, Sarah Wasaff works to keep our department in agreement with SEC regulations. Sarah joined ML&R Wealth Management LLC in 2015. In addition to her role as CCO, Sarah is the Director of Operations and creates processes to make our team function efficiently. SEC compliance is her specialty.

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