Becoming A Registered Investment Advisor: Why RIAs Have A Competitive Advantage


With the growth in popularity of investment advising as a career, many financial professionals are interested in becoming registered investment advisors (RIA). RIAs have a competitive advantage over other types of financial advisors due to their flexibility and independence in running their own advisory firms.

This article will provide a step-by-step overview of what’s involved in becoming a registered investment advisor, including understanding the role of an RIA, the registration process, required qualifications, and tips for starting your own successful advisory firm.

What is a registered investment advisor?

A registered investment advisor (RIA) is a financial professional who is registered with either the Securities and Exchange Commission (SEC) or a state securities regulator. RIAs are individuals or firms that provide financial advice to clients and manage their investment portfolios.

RIAs have a fiduciary duty to act in the best interest of their clients at all times when providing investment advice. This sets them apart from broker-dealers and other types of financial advisors who may not have the same ethical and legal responsibilities to clients. Acting as a fiduciary means, RIAs must fully disclose fees, conflicts of interest, and their qualifications.

One of the main advantages of becoming a registered investment advisor is your flexibility and independence in running your firm. As an RIA, you can offer a wide range of investment and financial planning services tailored to your client’s goals. You also have the freedom to choose your own custodian, set your own fees, and select individualized investment options on behalf of clients.

What Does a Registered Investment Advisor Do?

A registered investment advisor provides ongoing advisory services to clients centered around investments and financial planning. Their day-to-day responsibilities typically include:

  • Developing comprehensive financial plans for individuals and businesses
  • Selecting appropriate investments based on clients’ objectives
  • Monitoring clients’ investment portfolios and reallocating assets as needed
  • Meeting with clients regularly to provide financial advice and adjust plans
  • Overseeing the preparation of tax forms, returns, and required filings
  • Staying current on regulatory compliance issues and reporting
  • Managing business operations, marketing, and client service for the advisory firm

Most RIAs work as independent contractors or own small advisory firms. However, some RIAs may also work alongside other professionals, such as certified financial planners (CFPs) at larger financial services firms. Their role remains the same in providing investment advice aligned to clients’ best interests.

Steps to Become an Investment Advisor:

If you’re interested in becoming a registered investment advisor, it requires meeting specific qualifications, passing industry exams, registering with regulators, and launching your own firm. Here is an overview of the typical steps involved:

  1. Gain Relevant Education and Experience

Most states require RIAs to have a bachelor’s degree and work experience in finance, accounting, economics, or a related field. Gaining at least 3-5 years of experience in roles involving financial advisory, analysis, planning, or investments will help provide the foundation to become an RIA.

Additional certifications like the Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP) designations demonstrate more extensive investments and comprehensive financial planning expertise. However, these designations are not strictly required.

  1. Pass the Series 65 Exam

The main exam required for investment advisor registration is the FINRA Series 65 exam. The Series 65 exam assesses your competency on topics like retirement and estate planning, portfolio management strategies, taxation, and fiduciary obligations. Passing the exam helps satisfy the regulatory requirement to hold professional investment advisor qualifications.

Some states allow a shortcut alternative by passing both the Series 7 and Series 66 exams instead. However, Series 65 is the main exam focused specifically on registering as an investment advisor.

  1. Register with the SEC or State Regulatory Agency

RIAs managing assets worth over $100 million must register with the SEC. Smaller firms with under $100 million in assets under management can opt to register with their state securities commission instead.

The main steps for SEC registration include:

  • Submitting Form ADV electronically to the Investment Advisor Registration Depository (IARD) system
  • Submitting paperwork and documentation, including disclosures, policies and procedures, business structure information, and staff details
  • Paying registration fees
  • Passing background checks on firm principals
  • Maintaining $35,000+ in net capital at all times

State-level registration works similarly but with each state’s securities commission directly. The assets under management threshold to register with states maybe $25 million or $100 million, depending on the state.

  1. Set Up Your RIA Firm

With SEC or state registration approved, the next milestone is establishing your own RIA firm if you are working independently. This involves:

  • Structuring your firm’s business entity (LLC, S-corp, partnership, sole proprietorship)
  • Drafting your client agreement and onboarding process
  • Choosing a custodian like Schwab or Fidelity to hold clients’ managed account assets
  • Selecting portfolio accounting software for recordkeeping, reporting, and billing
  • Developing your investment strategies and offerings
  • Creating marketing materials, websites, content, and tools to attract clients
  • Finding office space (or configuring remote setup)

Throughout this setup process, ensure you have procedures in place to remain legally compliant. Continuing education is also required to stay up-to-date on regulations.

  1. Begin Advising Clients and Growing Your RIA

Once registered and established, you can begin charging clients for your advisory services and managing investment accounts on their behalf. Most of your time will be spent meeting with clients, constructing tailored financial plans and investment portfolios, overseeing trades and allocation, tracking performance, and focusing on excellent client service.

As you look to grow, focus on developing your niche, finding referral sources, and leveraging marketing channels that help attract your ideal clients. Keeping overhead costs low, automating processes, hiring talent, and maintaining stellar client retention will be key to scaling a successful RIA over the long term.

Registered Investment Advisor Next Steps

After becoming a registered investment advisor, your journey is just getting started. Here are some important next steps as you launch your RIA firm:

  • Adhere to fiduciary standards: You must always act in your client’s best interest when providing investment advice. Follow strict standards of conduct to avoid conflicts of interest.
  • Maintain registrations: Stay up-to-date on renewing SEC or state registrations. Update Form ADV and other firm information whenever significant changes occur.
  • Report and disclose to clients: Clearly disclose your qualifications, services, fees, and potential conflicts of interest to clients. Provide regular performance reports and statements.
  • Seek ongoing education: RIAs must participate in continuing education to stay current on regulations, strategies, and ethical issues.
  • Grow your niche: Focus on your target clients and develop your value proposition. Network, get referrals, and leverage appropriate marketing to attract more clients.
  • Manage operations and talent: Balancing excellent investment management with smooth business operations, technology, delegation, and legal/regulatory compliance is crucial for success.

The path of becoming an investment advisor requires dedication but offers significant upside for serving clients with tailored guidance to reach their financial goals.

Skills needed to become a Registered investment adviser

Here are some of the most important skills needed to be a successful registered investment advisor:

  • Financial analysis expertise: Ability to thoroughly analyze financial statements, portfolios, asset classes, and investments to make prudent recommendations.
  • Communication skills: Explain complex financial concepts and strategies tailored to each client. Actively listening and building trusting relationships.
  • Investment strategy: Possessing in-depth knowledge of portfolio management theories, models, trends, and different types of securities to construct customized portfolios.
  • Ethical conduct: Always prioritize clients’ needs and avoid conflicts of interest. Upholding fiduciary duty with integrity.
  • Planning skills: Proficiency in assessing clients’ goals and developing long-term, comprehensive financial plans to achieve them.
  • Regulatory knowledge: Staying updated on SEC and state investment advisor rules and regulations to maintain legal compliance.
  • Technological literacy: Leveraging financial planning software, portfolio management systems, and online services to serve clients efficiently.
  • Client service: Building trusting advisor-client relationships. Clearly communicating about investments and strategies. Responding promptly to client inquiries and concerns.
  • Business management: If running your own firm, strong abilities in marketing, operations, human resources, and general business strategy.

Registered investment advisors wear many hats and must be skilled across both financial advisory disciplines and running a service business. Gaining expertise across all these areas is what sets successful RIAs apart.

Frequently Asked Questions:

Q: What is an investment adviser representative?

A: An investment adviser representative (IAR) is an individual who works for a registered investment advisor and is involved in providing investment advisory services to clients. The IAR must meet certain qualifications and may need to pass certain exams or obtain specific licenses.

Q: How do I register as an investment advisor with the SEC?

A: To register as an investment advisor with the SEC, you must fill out Form ADV, the uniform application for investment adviser registration. You will also need to pay the required fee and provide any additional information or documents requested by the SEC.

Q: What is the difference between registering with the SEC and registering with my state?

A: The main difference is based on the amount of assets you manage. If you manage assets below a certain threshold, you will need to register with your state securities regulator. If you manage assets above that threshold, you will need to register with the SEC.

Q: Can I work with individuals and businesses as a registered investment advisor?

A: Yes, as a registered investment advisor, you can work with both individuals and businesses. You can offer financial advice and manage investment portfolios for a wide range of clients.

Q: What skills are required to become a successful investment advisor?

A: To become a successful investment advisor, you should have strong analytical and problem-solving skills, excellent communication and interpersonal skills, a deep understanding of the financial industry, and the ability to build and maintain relationships with clients.

Key Takeaways

The path to becoming a registered investment advisor is rigorous but ultimately rewarding, offering professionals the chance to carve out a niche and serve clients in a meaningful, fiduciary capacity. As the landscape of the financial advisory world continues to evolve, aligning with trusted experts and resources becomes even more crucial. For those who need assistance, My RIA Lawyer in Atlanta stands out as a valuable ally. This partnership not only ensures that advisors navigate the complexities of regulations and compliance but also thrive in a market where adaptability and trust are paramount. The future of financial advising is dynamic, and with the right support and dedication, RIAs can be at the forefront of this exciting evolution.

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