What is a Registered Investment Advisor?
Stewardship Financial’s goal is to help our customers reach their financial objectives and build wealth. We do this by offering financial guidance. When starting Stewardship Financial, we considered which business model would be most effective in accomplishing this. We concluded that operating as a Registered Investment Advisor (RIA) offered the best experience for our clients.
An RIA is a firm that advises clients about investments for a fee. RIA’s are regulated by the U.S. Securities and Exchange Commission (SEC) or by state regulators and are required to act as fiduciaries to their clients.
Here’s a more in-depth breakdown:
Investment advice
Investment advice can mean just that — advice or recommendations about investments. Often, it means the actual management of someone’s investments. An RIA uses a third-party custodian (a financial institution) to hold the assets that it manages. At Stewardship, we use TD Ameritrade and Betterment.
Even though the definition of an RIA talks about investments, many RIA’s provide comprehensive financial advice and guidance. This can include areas like planning for retirement, college expenses, and budgeting.
For a fee
An RIA is compensated by its clients via fee for services. This contrasts with a broker model where an advisor receives commissions through the sale of financial products and securities.
At Stewardship, we felt the RIA model limited the conflict of interest when working with clients’ money. Charging a flat fee aligns our interests more closely than if we were compensated by the mutual fund companies used in our portfolios.
SEC or state regulated
The SEC, through the Investment Advisers Act of 1940, regulates the activities of RIA’s. Since there are over 30,000 RIA’s in the U.S., firms that manage less than $100 million are regulated by the states in which they do business.
Fiduciary duty
A central tenet of being an RIA is the obligation to act in the best interests of our clients. This fiduciary duty permeates every recommendation made by the advisors of an RIA. Surprisingly, this duty is not required of advisors operating in a broker capacity (although the Department of Labor recently pushed to have a fiduciary requirement by brokers).
If you’re considering a financial advisor, taking time to understand the business model behind them is key. Even the most well-intentioned advisor can be subject to the deficiencies of the model in which he/she operates. At Stewardship Financial, we feel that the RIA model gives our clients the best experience while working toward their financial goals.
To learn more about Stewardship Financial, how we operate, and how we can help you, fill out the form on this page!
This content was originally posted at http://moneywellrooted.com/2017/09/19/what-registered-investment-advisor.
