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What Are Registered Investment Advisors (RIAs)?

Updated: Jul 26, 2022



The stock market is a highly sophisticated and intricate marketplace. Although purchasing and selling stocks may seem simple, it is fairly complicated. The trading decisions you make each time you purchase or sell a company's securities must be supported by appropriate research and strategy to be profitable.


Benjamin Graham, the inventor of investing, wrote in his book Intelligent Investor that "Mr. Market is quite moody". Market movements are greatly impacted by unpredictable human emotions. Many investors can run into difficulties here. Financial experts can help you in such circumstances.


One of the easiest ways to get this expert help is through an RIA. So let’s take a look at the world of RIA, and understand what’s it all about.


Understanding RIA

Simply put Registered Invest Advisors is a person or organization that gives investment advise to investors or individuals who seek their services. So does anyone who gives investment advise become an RIA, no. RIA’s are authorised and recognised by SEBI. This means they have to follow a set of rules and regulations and have a lot of obligations. Most important is that they have to put the clients' interests over their own.


Regulations that an RIA has to follow

Investment advisors in India are governed by the SEBI Investment Advisors Regulation, 2013. Additionally, SEBI specifies the registration requirements, qualifications, eligibility standards, client fees, client agreements, and implementation services. To boost investor confidence and increase openness in investment advisory services, SEBI periodically amends the rules for Registered Investment Advisers (RIAs). These are the guidelines for an RIA.


Additionally, Registered Investment Advisers RIAs should report potential conflicts of interest to their clients. When a client questions the suitability of an investment, the RIA has to explain the process of selection. The process of identifying the asset, risk mitigating strategies undertaken, and proving the suitability of the asset.


Charges

RIAs prepare a financial plan for their investors, taking into consideration their goals, finances, and their current situation. They also charge a fee for their services. It is usually a flat fee for the financial plan and an ongoing fee for the service they provide. Following are the two types of fees collected by RIAs:

  • Percentage of assets: This is similar to trail commission on mutual funds. However, the only difference is that this fee is collected directly from the client and not the fund house. The fees depend on the size of the assets. It is usually 1% to 2% of the assets, and as the asset base increases, the fee comes down.

  • Flat fee: This is a fixed fee charged by the advisor on an annual basis. It is fixed by the mutual consent of the investor and advisor.

Competitors of RIA

Various types of advisors practice and perform advising in various ways. The organizations or individuals who directly compete with RIAs could be :

  • Mutual fund houses

  • Hedge funds

  • Investment banks

  • Online or discount brokers who cater to do-it-yourself (DIY) investors

  • Robo advisors

Benefits of RIA

RIAs have the qualification, certifications, and experience required by the regulation to ensure that the customers get quality advice. Moreover, they also check the suitability of the investment advice and carry a risk profiling as per the guidelines. The RIAs are obliged to act in a fiduciary capacity towards their clients. Therefore, they disclose all the conflicts of interest when they arise. Furthermore, the execution and investment advisory services are separated to reduce conflict of interest. Thus, this brings transparency to the process of investment advice.


How do you check if your RIA is a SEBI Registered one?

The easiest way is to look them up on the SEBI website. On it, the entire database of all the RIA’s is readily available. Here’s the link if you wanna go take a look right now!


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