What
is a "Registered Investment Advisor"?
Registered Investment Advisors
["RIAs"] are specialists in the management of financial security portfolios.
Most of the 8,000+ Federally-registered Advisors supervise assets for mutual funds,
pension plans, and institutional clients. The remaining Federal RIAs are in "private
practice"... providing personalized investment service to individuals, trusts, and
small business clients.
Here are the facts about what it
takes to become and remain a Registered Investment Advisor and the roles that regulatory
agencies perform for RIA clients... |
 | U. S. Government registration of Advisors began with
the 1940 Investment Advisors Act. Today, Federal Advisor regulations are one of the
most fully developed codes for financial practitioners in the world. |
|
| Since 1998, Federal Advisor
registration by the U.S. Securities and Exchange Commission ["SEC"] has been
limited to applicants with assets of $25 million or more under "continuous and
regular" management. [A few exemptions to this minimum asset rule exist,
e.g., the SEC registers "small" Advisors in a few States that haven't enacted
their own RIA laws yet.] |
|
| Federal registration requires
disclosure on Form ADV of an Advisor’s... investment analysis methods, types
of investments used, number of clients, services offered, compensation methods, account
management methods, key employee education and work histories, disciplinary history,
brokerage selection and commission policies, affiliations with external organizations,
paid client referral arrangements, and potential conflicts of interest. Federal RIA clients must be
offered a copy of Form ADV, Part II or
its equivalent annually.
 As
of September 2001, you can read the full text Form ADV filing of every
Federally-registered Investment Advisor at: SEC
Investor Advisor Public Disclosure Website |
|
| Both Federal- and
State-registered Advisors are subject to unannounced inspections of their operations by
regulatory authorities! Federal inspections are typically extensive reviews against
the SEC’s stringent record-keeping regulations, advertising restrictions, "due
diligence" rules, and anti-fraud provisions. [One example of the rules Federal RIAs
live by... an Advisor cannot use testimonials from satisfied clients to market its
services!] |
|
| Advisors with managed assets less than $25
million are almost always required to register with the State (or States) in which they do
business or have a physical presence [offices; staff]. State registration typically
requires passage of standardized National Association of Securities Dealers tests, and
disclosure of key employee education and work histories, business or personal legal
sanctions, and financial statements. In some cases, key employee fingerprinting is
required. |
|
| Federal Advisors must make
"notification filings" in any State in which they have a physical presence.
They must also fully register in many States when they have more than
five clients there.
Each "representative" of an RIA firm and at least one "investment
principal" must be identified and qualified in State filings. ["Principal"
designation typically requires testing and disclosure procedures like those listed in the
preceding paragraph.] |
|
| Federally Registered Advisors have been required to
submit written reports of their Year 2000
emergency preparedness. Many
Advisors were additionally interviewed in person and by telephone on their Year 2000
preparedness by SEC personnel. |
|
| Registration documents filed by
Federal Advisors are public records available to prospective clients and all citizens.
Some Federal Advisor filings are now posted on the Internet by the SEC and all filings
will be posted in the future. In addition, the SEC and most State regulators respond to
citizen inquires about the disciplinary history of any RIA in their jurisdiction. |
|
THE
SHORT ANSWERS...
(1) Essentially all
Federally-Registered Investment Advisors must have the knowledge and experience to attract
assets of $25 million or more to their portfolio management businesses.
(2) RIA firms are subject to
some of the most stringent disclosure and oversight rules in the financial services
industry.
(3) Almost 60 years of
regulatory development has provided many safeguards for clients of Registered Investment
Advisor firms. |
