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April 7, 1999

Wall Street Credentials

RIA
Registered Investment Advisor

Overview -- Paying for investment advice from someone who is not a broker? Look for the RIA designation since it is, in many instances, a required license rather than an earned credential. This designation is a cousin to the Registered Representative and anyone involved in a business that provides advice related to stocks and receives compensation for doing so must by law attain the RIA designation.

Some individuals giving investment advice may be exempt from having to register, such as accountants and financial planners who provide advice regarding securities tangential to their normal businesses. Those who give advice for free or who are not compensated directly for their advice do not need the RIA credential.

Furthermore, brokers (registered representatives) generally do not have to attain the RIA designation, and the regulatory rules make the two designations nearly mutually exclusive. Typically, Registered Representatives charge commissions on a per-trade basis, while an RIA will charge for advice on a non-activity-based system, such as for a flat fee.

Larger investment advisors must register with the Securities and Exchange Commission (SEC) while those with less than $25 million in assets under management generally only register with the state in which they are doing business.

Requirements -- In order to become an RIA an individual must file with either the state in which they do business or with the SEC. For those filing with the SEC, Form ADV must be completed, and there are no testing or education requirements. Some states may require successful passage of some of the exams given by the National Association of Securities Dealers, such as Series 7 and Series 65. However, this testing requirement varies widely by state.

Even though actually attaining the RIA designation is relatively easy and there are minimal educational requirements, those maintaining an investment-advisory practice are under significant regulatory oversight. Plus, all investment advisers must follow all the laws in the Advisers Act.

Time Needed To Fulfill Requirements -- The time needed to fill out the forms and register with the states and the SEC is a matter of days. Once Form ADV is filed, the SEC has 45 days in which to start the denial process; otherwise they must approve the filing.

For those who must take the Series 65 and/or the Series 7 exams, the time needed to study for the exams is generally only a matter of weeks. Those with a background in the securities industry may be able to pass the exams after only a short review.

Note:
The SEC frowns upon Registered Investment Advisors using "RIA" after their names. "RIA" is merely a convention for shortening the designation.

Next -- Registered Representative (RR)

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