Registered Investment Advisor Rules
A career that continues to grow in popularity in the 21st century is registered investment adviser (RIA). This person works with clients directly or indirectly, normally charging a fee based on the overall amount of assets under management. This fee-based model eliminates conflict of interest; clients can receive unbiased advice versus strategies that make more money for the adviser. Like all careers in financial services, an RIA must meet certain requirements.
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Education
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There are no formal education requirements to become an RIA. However, it is advisable that you have at least some background in personal finance or economics. This will make it easier to pass the licensing exam. In addition, you should have an understanding of the regulations that govern registered investment advisers.
Licensing
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To become licensed you must not have any bankruptcies or have been convicted of any felonies. You must fill out a fingerprint card and a U-4--Uniform Application for Securities Industry Registration or Transfer. You send this information to the state, where they will register you to take the Series 65 financial certification exam. You have 90 days to study and then you must take the exam.
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Audits
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All registered investment advisers are subject to unannounced audits from regulators at least once a year. These audits ensure that all legal requirements are being met: that everyone is properly licensed, the records are in order and the RIA is not violating any anti-fraud provisions.
State Registered Advisers
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All RIAs with less than $25 million under management need to file with the state. If you have between $25 million and $30 million under management you can file with the state or as a federal adviser.
Federal Advisers
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Those registered investment advisers who have more than $30 million under management are required to file with the Securities and Exchange Commission. There are several situations where those investment advisers with less than $25 million must file with the SEC: those RIAs whose clients are investment companies, the RIAs who are not subject to state laws, pension managers with at least $50 million under management, and new RIAs who believe they will fall under SEC filling requirements within 120 days.
Fiduciary Responsibility
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All registered investment advisers are required to act in the clients' best interests at all times. Any potential conflicts of interests must be disclosed to clients. A disclosure agreement should state the nature of the relationship between client and adviser and should include type of services, client fees and whether the adviser is compensated from other sources.
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