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What is a "RIA" firm ?

Oct 30, 2013 by Robert from Greenville, SC in  |  Flag
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Carlos P. Sava Level 13

An RIA firm stands for a Registered Investment Advisor. These firms and professionals provide financial planning, investment management, and related advice and services to their clients. They are registered with state regulators or the SEC depending on the assets they manage as well as other factors.Typically the RIA firms and individuals are compensated on a fee basis, which can be a % of assets they manage or a flat fee ($xx / year), as well as other arrangements. A broker is compensated on commissions and sales fees, e.g. we recommend you buy stock XYZ and you will pay $50 for the trade. Investment advisors are held to a higher standard, a fiduciary standard, which states that they must act in the best interests of the client. A broker is held to a suitability standard, which is generally considered less stringent and means that the investments recommendations are appropriate. Broker relationships have the potential for greater conflicts with clients and the interests' of the firm, such as a broker at firm X who works at a firm underwriting IPO Y recommends clients buy shares of firm Y, which may or may not be the best advice possible for the client. When brokers are paid on commissions, some believe excessive trading activity can occur to boost broker compensation. A hybrid RIA is a firm that can earn compensation on both a fee and commission basis. I hope this helps as it included a bit more than your original question. Registration does not represent an endorsement of skill or qualifications.

Comment   |  Flag   |  Oct 30, 2013 from Arlington, VA

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Robert, An RIA firm stands for a Registered Investment Advisor. This is a designation that companies receive when they register with the SEC or a state securities commission to operate as an investment advisor. RIA's have a fiduciary obligation to act in their clients best interest. Hope this helps.

Comment   |  Flag   |  Oct 30, 2013 from Leawood, KS

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Robert,

"RIA" stands for registered investment advisory or advisor. It means the firm is registered either with the Securities and Exchange Commission or with the state's investment advisor regulators depending on how much money they have under management. The statue that governs RIAs is the Investment Advisors Act of 1940. The Act requires RIAs to be a fiduciary to their clients which means they have to place the client's interest before their own. It is often incorrectly assumed that everyone calling themselves a financial advisor/planner/etc. is required to place their client's interest first. Most advisors in this industry own loyalty first to their employer (bank, insurance company, mutual fund company, broker dealer, etc.) and not the client. The employer will overtly demand that certain products be sold or will incent the employee to sell certain products over other ones. You have to be careful to sort the fiduciaries from the product sales people. If they profess to be a fiduciary ask for it in writing. This is very important. I hope this helps to answer your question.

Comment   |  Flag   |  Oct 30, 2013 from Kingsport, TN

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An RIA is a Registered Investment Adviser that serves his clients as a fiduciary, just like an Attorney or Trust Department. They can be either an SEC RIA or a State Registered RIA, the main difference here is the amount of assets the firm gives advice on is over $100,000,00.00 they are supervised by the SEC or under then its the State they are headquartered. The professional supervision and reporting requirements are basically the same.

The big difference is the adviser that is an RIA (SEC or State) is a fiduciary while the other financial industry stock brokers and insurance agents are not fiduciaries. I recommend you always use a RIA due to their independence and higher standards of Fiduciary advice.

Comment   |  Flag   |  Oct 30, 2013 from Milwaukee, WI

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Robert,

If you want a good resource to learn a little more on what an RIA is and the benefits to working with one you can visit www.riastandsforyou.com. The website is provided by Charles Schwab.

Comment   |  Flag   |  Oct 30, 2013 from Uniontown, OH

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Robert,

You have gotten a lot of great responses here. One thing that I like is a piece by TD Ameritrade that really explains the differences between an RIA and a broker as well as one of the main things the sets them apart, which is the difference between being a fiduciary vs. just simply needing to have suitability.

Here is the piece: http://www.tdainstitutional.com/tdai-en_us/resources/document/RIAs_and_Brokers,_Suitability_and_Fiduciary1.pdf

Comment   |  Flag   |  Oct 30, 2013 from St. Louis, MO

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