What is an RIA?

The Registered Investment Advisor

The financial services industry is undergoing rapid changes. As the needs and desires of consumers change, firms engaged in managing money are also changing. A registered investment advisor (RIA) manages the assets of individuals and institutions. RIAs can be individuals, partnerships, or corporations.

The old model of a broker calling his clients with stock ideas is passing away. In fact, there have been a large number of client assets leaving this model, for several reasons, including high commission fees and inadequate diversification.

Align Your Interests With Those of Your Clients

Today's clients are looking for a true financial "coach," a resource they can look to for solid advice on their complete financial picture. Clients increasingly want to have more options and easier access to decision makers on their accounts. A good RIA will speak to clients in terms of their overall goals and objectives and review these with the client at regular intervals.

An RIA can create portfolios using individual stocks, bonds and mutual funds. RIA firms can cover the spectrum of what goes into their clients' portfolios.

The RIA provides an additional responsibility through the holdings that are brought in by clients and requested not to be sold. Many times a portfolio must be constructed around a large position; in this case the portfolio manager must devise a way to mitigate the risks.

An RIA firm is a progressive business in today's changing landscape of money management. It is an excellent place to begin a career or expand an existing practice.

Define Your Business Model

Registered Investment Advisors can be compensated in a variety of ways including preparing financial plans, managing assets, or providing planning or advice. Some advisors may specialize in one area while others may work in many areas and charge fees accordingly. Advisors who work with custodians typically charge for managing client assets by applying a percentage (fee schedule) against the client's assets.

Define Your Fee Structure

Now that you're in control of your own investment firm you are free to develop your own customized pricing. A fee charged for assets under management is either directly billed to the client or deducted from the client account by the custodian and paid to the advisor on a monthly or quarterly basis. Most advisors feel this compensation arrangement is an advantage over the traditional commission business because it places the advisor's and clients' interest together. As the clients' assets grow, the advisor's fees grow. It also eliminates the broker-dealers' products and commission rates from influencing an advisor's recommendations.

Many broker-dealers have begun to offer fee opportunities for representatives as a result of the RIA movement but typically they still share in the fee income derived from the representative. However, when an RIA starts his own firm he retains all of the fee income and can build a business that can later be sold or transferred to an heir or colleague.

Choose the Right Partner

Current representatives who are considering starting an RIA firm but need to retain some of their commission income might consider our Hybrid Advisor Program that allows them to operate their own RIA firm and retain 100% of that revenue while utilizing our partnering broker-dealer for commission business.

Product Offerings

Traditionally, RIAs have managed assets by utilizing stocks, bonds, and mutual funds and occasionally recommending another financial institution's product. However, today financial institutions - varying from banks to brokerage firms and insurance companies - have products available to independent RIAs, ranging from market index CDs to various annuity types and traditional CDs.

As an advisor, all these products are available to assist you in managing client assets. Many custodians who cater to RIA's offer traditional mutual fund share classes without the loads, permitting the advisors' clients to purchase shares at the Net Asset Value. This custodian will have a mutual fund book containing the different mutual funds that state if the fund can be bought at NAV or if a transactional commission applies.