The registered investment advisor is bound by fiduciary duty to put their clients' financial interests ahead of their own
Nearly eight-in-ten Millionaires use a professional financial advisor, according to ongoing research conducted by Millionaire Corner. The most common type of advisor is the full service broker, followed by an independent financial planner. A smaller share opts for the services of a registered investment advisor.
This may be because an RIA is less familiar to them. Millionaires have less of a grasp on RIAs than they do of banks, insurance companies, accounting and law firms, full service brokers, discount brokerage firms, and independent financial planes, our research finds.
What is a RIA and what services do they provide? A Registered Investment Advisor is defined by The Investment Advisers Act of 1940 as a "person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities (such as stocks, bonds and mutual funds), either directly or through publications." An RIA has a duty and obligation to provide suitable investment advice and always act in the clients' best interests.
They are compensated either by charging a percentage of the value of the assets they manage for clients, an hourly fee, fixed fee, or a commission on the securities they sell (if the adviser is also a broker-dealer). ‘
Registered investment advisers tripled assets this past decade as Americans came to view them as more impartial than brokers, according to Bloomberg BusinessWeek.
Investment advisors managing less than $100 million are required to register with state regulatory agencies. Those managing more must register with the U.S. Securities and Exchange Commission. As part of the registration process, a registered investment advisor must file a Form ADV, which, among other things, discloses the services provided by a registered investment advisor, as well as associated fees and any third-party compensation. Investors can also use the Form ADV to research the personal background of the registered investment advisor, any potential conflicts of interest and the firm’s code of ethics. A registered investment advisor is required to update the Form ADV every year, and to offer the information to clients.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.