Independents’ Day

According to the wealth-research firm Cerulli Associates, by the end of this year, some 25 percent of U.S. investor assets will be managed by 30,000 independent registered investment advisors, or RIAs—and the percentage is growing fast. The reason? An increasing number of advisors who are leaving Wall Street firms to start their own RIA firms or join existing ones.

So what differentiates independent RIAs from other advisors, and what do you need to know about them?


Independence is a function of who employs the advisor. For example, Wall Street firms, banks and insurance companies employ RIAs. The RIA is one more way these firms can build their assets under management. But while Wall Street firms manufacture their own investment products for their RIAs to sell, independent RIAs offer open-architecture systems that provide greater freedom of choice to investors.

Who Can Give Advice

RIAs and investment advisor representatives (IARs) who market the services of RIAs provide financial advice for a fee. Broker/dealer representatives such as stockbrokers make recommendations that sell particular products. Their only compensation is commissions. Do you want a salesman investing your assets?

Financial Services

Most RIAs provide planning and investment services. Some RIAs also provide insurance advice for a fee, and a smaller number provide tax-related services. Very few RIAs provide legal advice and services for trusts and estates. Some RIAs affiliate with third parties such as CPAs and attorneys to provide a broader range of services.

Fee Compensation

Most RIAs charge fixed hourly fees for their planning advice and services. They charge a percentage of assets for investment advice and services. Or, they may bundle the fees together into one asset-based or fixed annual fee.

Fiduciary Status

Based on industry regulations, only RIAs and IARs are financial fiduciaries. Fiduciary is the highest ethical standard in the financial services industry; fiduciary advisors are required by law to put your financial interests ahead of their own.

Registered representatives are held to a much lower standard called suitability. They are supposed to make “suitable” recommendations based on your financial situation. This vague standard varies by investor, changes over time and is very difficult to enforce.

Local Ownership

One of the most attractive features of many of the 30,000 independent RIAs is local ownership. Professionals who live in your community own these firms. Local ownership increases your access to experts making decisions that affect your money. They’re not thousands of miles away, so you can talk to them in person.

Dual Registration

According to Cerulli, 83 percent of RIAs hold dual registration that permits them to provide financial advice for fees and sell financial products for commissions. Dual licensing creates the potential for a conflict of interest if the RIA can make more money selling products for commission than by providing financial advice for fees.

You should require all advisors, RIAs and non-RIAs, to document their licenses, registrations and methods of compensation. You may also want to know the amounts of their compensation and the types of services that you receive for those payments. RIAs have many things going for them, but to get the best advice, you still have to ask the right questions and know the good answers (which services benefit you) from bad ones (which create hidden risks).

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