Retirement

The Importance of Working with an RIA to Manage Your Money

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Money management is a complicated topic. Because of this, many investors choose to work with either a financial advisor or a registered investment advisor. It is important to get the best advisory service and to know that the advice is well-meaning rather than linked to some kind of commission for the advisor. Read on to learn why using an RIA is worthwhile and often preferable over other options. 

How is a Registered Investment Advisor Different?

Individual investors are sometimes confused about terms like ‘financial advisor’ and ‘registered investment advisor’ (RIA). While financial advisor has a duty to provide useful advice, they’re usually influenced by what benefits them the most (higher commissions) versus the investment product that’s likely to be best for the client. In contrast, an RIA has a stricter fiduciary standard to meet where they put their clients first and their needs second. Therefore, investment recommendations are based on what’s best for the client and not what generates the highest commissions for the advisor.

For prospective clients, it is a major differentiator that allows them to set aside concerns about conflicts of interest due to remuneration differences. While some financial advisors are now fee-only rather than commission-based, the higher fiduciary standard still doesn’t apply to them. 

Avoid Ties to a Limited Range of Investment Companies

An RIA is not tied to a single company or a handful of companies and can offer its range of investment products to all clients. This means the client is not restricted to what’s beneficial to the representative but instead is free to take on board recommended investments from various providers in the wider marketplace. 

It also allows for greater flexibility for clients to request the type of investments they’re interested in and see recommendations along those lines. This also can include options that don’t offer a commission and track indices through index investing at a lower annual cost. 


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For example, a client may be interested in so-called ‘green’ investment opportunities, which are not offered by the majority of providers. An RIA is free to examine the whole market rather than a small sub-set, which ensures they can better serve their client. 

Get Multiple Services in One or Through Trusted Referrals

An RIA can also provide other services depending on what’s needed. The services might include basic advisory ones, the provision of insurance, or planning for the future. And again, their advice is not influenced by previous recommendations that were commission-oriented. 

Beyond that, an RIA will have a reliable network of trusted colleagues who can provide related services that fall outside their remit. This might include an estate planner, a CPA, or other experts in their field. 

It’s important to be clear on any potential conflicts with any representatives. 

What to Look for When Choosing an RIA

Given how much there is to gain by working with a good RIA, it makes sense to put some time and effort into finding the right person. Not all registered investment advisors are cut from the same cloth. Some generate better results than others, and if you want to make your money work that bit harder, it’s best to find someone you can work with, both on a professional and personal basis.

Fees 

The first aspect is their fee structure. Look for an advisor that offers a fee-based arrangement rather than commission-based advice. As discussed already, when an advisor works on a commission basis, they have very little incentive to examine the merits of an investment and tend to work by volume rather than the quality of advice. 

Oversight

Check whether the advisor or platform is validated by a reputable third party, as this gives you an extra layer of protection from investment scams. It also helps ensure account reports are more accurate. After all, the last thing anyone wants is to learn they were part of some kind of Ponzi scheme and their cash has disappeared into a black hole.

Relationship Management

Find out who is responsible for investing your money. Often, the first person you speak to will be a sales representative or relationship manager. This may not be the person making the investment decisions. It’s helpful to know this at the outset. It’s also helpful if you feel the person you deal with is listening to you and has a solid understanding of your investment goals.

For example, if your primary aim is to build a solid retirement fund, without placing your capital at risk, then the last thing you need is an RIA willing to jeopardize your money by investing in high-risk crypto or carbon credits.

Reporting

Most clients would not be happy about handing over their money to an RIA and then hearing nothing more for months or years. The likelihood is that if you are purposefully searching for someone to manage your money, you are actively interested in what happens to it and how well your investments are performing. This means transparent performance reports are critical. 

Regular reports help the client gauge how well the advisor is performing and whether the performance of their investment strategy is as expected, better than expected, or below par. Make sure you understand the reports you receive. Are they clear? Can you evaluate the results? Can you see exactly how well your investments are performing? If the answer to any of these questions is “no”, it’s a good idea to revisit the relationship you have with the RIA and consider switching to a different one.

Using a registered investment advisor may have multiple benefits over other alternatives, but only if you choose the right one. Word of mouth is a useful way of finding an advisor you can work with, one that maximizes your investment returns, but don’t take this as gospel. After all, Bernie Madoff probably relied on positive word-of-mouth recommendations before his infamous Ponzi scheme imploded!

Seamless Admin

Even an RIA qualified to manage clients may be less strong on the administrative side. This might be evident in their office if paperwork seems to be everywhere and, clearly, they’re not mostly digital yet. It also may show if their billing seems haphazard, goes out at irregular intervals, or is frequently incorrect and needs to be carefully reviewed each time. Invoicing and billing software like those offered by Redi2 Technologies will adroitly handle billing to systematize it and prevent mistakes. 

Always carry out your own checks on a potential RIA. Investigate whether they offer the types of service you are looking for and whether they have risk management protections in place. If there are any red flags, walk away. 


Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone

The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.


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