Registered Investment Advisors

Every year, thousands of finance graduates dream of entering high-level jobs as stock brokers, bank management staff, and investment experts. Many of them, backed by qualifications from colleges at the top of the food chain, walk straight into their positions, earning a lucrative salary as soon as they start working. Others work their way up the chain, moving into new positions while gaining skills.

Others, however, look at opportunities outside the broker-manager spectrum altogether. There’s an assumption that the financial services industry is all about short-selling and making quick financial decisions – an assumption that, like many others, is actually far from true. There are hundreds, even thousands, of different positions within finance, many of which are highly lucrative for employees.

Today, we’re going to look at a position within the financial services industry that’s often passed by without much thought from would-be financial experts. Registered Investment Advisors are often a key part of personal, or even business, financial investments. Today we’ll look at their role as part of a larger financial services organization, and the myriad ways in which an advisory role can function.

Registered Investment Advisors, often abbreviated to IAs, act within a unique role in the financial services world. Unlike brokers, they’re rarely involved directly in transactions, preferring to take a management-type position with their clients. Generally speaking, an IA will meet with their clients and offer advice about which investments will pan out, often in exchange for a small related fee.

This puts IAs in quite influential positions, as many meet with clients that may maintain a high-value account with their investment bank or brokerage. Within their role, a registered investment advisor is expected to provide feedback on potential investments, advice on investments that are currently engaged in, and network with brokers to find preferable rates for all of their clients.

For example, within the role of a client’s investment, an IA may simply meet with the client ever so often to discuss potential new investments, explain how their current investments are performing in the market, and offer advice on how to best optimize their stock or commodity holdings. Whenever a recommendation is made, it needs to be in the best interests of the client, not the IA themselves.

The Registered Investment Advisor will then continue to manage these investments on behalf of their clients. Many act as broker-dealers also, trading stocks and bonds on behalf of their clients, generally based on past discussion with the client. This allows many IAs to make quick decisions that would otherwise not happen due to a client’s other appointments and work responsibilities.

There are two primary types of Registered Investment Advisor, their ‘type’ determined largely by the amount of capital that they manage on behalf of their clients. State Registered Investment Advisors, IAs who manage a total capital pool of less than $25 million, are generally registered with the SEC on a state level, and manage investments primarily within the state in which they’re registered.

These investment advisors are, despite offering large-scale services, generally independent advisors that do not work as part of a larger financial services firm. Often, they operate an advisory business with the assistance of other partners. These smaller-volume advisors will often interact with brokers to complete trades, rather than acting as a broker-dealer within their own advisory business.

The second type of Registered Investment Advisor is a Federal Registered Investment Advisor – a higher-volume investment advisor that manages more than $25 million in total assets. Due to their larger account size, these IAs must register with the Securities and Exchange Commission, much in the same way that a stock broker or other investment-type operation is required to register.

This registration process acts to weed out fraudulent advisors – the type of advisor that’s likely to embezzle client funds or mismanage investments. Although the vast majority of IAs provide help and worthwhile advice, there are bad apples out there. The SEC registration process aims to limit the amount of poorly suited or unethical investment advisors that make it into the open market.

It also allows the SEC to monitor investment activity, at least to the level that’s required by Federal law within the United States. As investment scams and market manipulation are possible, the SEC generally maintains a close presence with larger investment advisory businesses. This is to prevent fraud and limit clients’ funds mismanagement – two unfortunate realities of the financial industry.

Registered Investment Advisors are compensated in a number of ways – a small fee for their time, a commission-based structure, or an hourly-billed structure similar to that used by an attorney. There’s no one way for IAs to bill their clients, so when shopping around for an investment advisor, don’t be surprised to see a wide range of different rate structures on offer, or even wildly different fee rates.

Whether you’re planning to work as an investment advisor, or simply a high-volume investors that’s seeking some financial assistance, an IA can be a helpful presence for managing your capital. While there are some bad examples out there, as with any role in the financial services world, a good IA is a true asset – an asset that can help you earn more, learn more, and improve your own investments.

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