Guidelines for investing with an RIA
Investing your money with just any old advisor isn’t hard to do. But if you want a consultant who is legally bound to provide you with the best investments for your particular situation, look for an RIA, or registered investment advisor.
RIAs agree to be regulated by the SEC and, therefore, are required to operate under a different standard than other consultants. They often come in the form of firms or partnerships, and if they don’t act in your best interest, they face penalties from the SEC. Sure, other advisors may want to do what’s right for you, but occasionally they are driven to push certain products by their firms. RIAs have to act in your best interest, even if it’s not in the best interest of the firm.
Here are a few things to know when looking for an RIA:
Find the ADV form
RIAs are required to submit a yearly ADV form to the SEC which lists – along with several other things – how the firm is compensated, the kinds of clients it services and the types of services it provides. Get on the SEC website to find the most recently filed ADV forms. If you’ve already found an investor in your area, and you’re not sure if they are an RIA, just ask.
Ask about compensation
Most RIAs are on a fee-based model – they are compensated according to how your portfolio performs. They charge a yearly fee – often a certain percentage of assets – which is usually around 1 percent. That percentage decreases as your assets increase. Advisors may also charge a commission, but they are required to disclose that information on the ADV form.
You’ll need a minimum
Some firms require that you invest a minimum amount of money to start. That could be $250,000 or $1 million. But if you don’t have an expendable $250,000 – most of us don’t – there are some exceptions. Many RIAs will take on the children of clients, or clients whose accounts are likely to grow a large amount over time – for example, those who are just entering the medical field or other lucrative careers.
Assess their performance
Before you begin with an RIA, ask to see the performance results of bundle accounts for clients with similar characteristics, and ask to see performance results for hypothetical investors. References from clients of the RIA are also very valuable for an assessment.
Pick the right RIA for investing
While RIAs may provide a selection of services, you should look for one that is best suited to your investment needs. Look for a registered investment advisor who has clients similar to you and who can provide all the services that you’ll need.