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RIA

Sep 11 2008

What is RIA (Registered Investment Adviser)?

Wikipedia has the legal definition of Registered Investment Adviser.

Following is a summary of the difference between RIA (Registered Investment Adviser) and B/D (Broker/Dealer).

Registered Investment Adviser:

  • Manages the assets of high net-worth individuals and institutional investors, usually requires a minimum $100,000 or more to open an account.
  • Receives fee for investment management service, and the incentive is to grow clients’ asset.
  • Typically there is no relationship termination penalty.
  • Sits on the buy side of the investment field.
  • Must pass Series 65 license exam, and must register with SEC and/or States.
  • Why? As the amount of money an individual has increases, the need for risk control increases, and the ability to achieve the best results with shrink-wrapped financial products diminishes.
  • What is the benefit? Clients have access to customized portfolios, and managers can monitor portfolios on daily basis.

Broker/Dealer:

  • Sells financial products to consumers, typically requires very low minimum $500 or more to open an account.
  • Receives commissions from product sales, and the incentive is to sell more products.
  • Some products have sales load in lieu of commission, or have early termination penalty up to a few years for insurance related products.
  • Must pass Series 6, 63, or 7 license exams and State insurance license exam, and must register with SEC and/or States.
  • Why? It is cost effective to buy financial products for smaller accounts. Some products also provide tax-deferred benefits.

Here is a picture showing how RIA works in practice:

Written by Hengfu Hsu · Categorized: FAQ, RIA · Tagged: RIA

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