A Registered Investment Advisor (RIA) has a fiduciary duty to act in the best interest of clients. Experts explain what that means for clients, as well as how a Registered Investment Advisor Bond serves as a form of public protection.
Fiduciary Duty To Clients
There are different types of financial advisors, but not all have the fiduciary obligation to their clients that Registered Investment Advisors (aka RIAs) have. As Forbes explains: “Fiduciary responsibility is important because it ensures that the person managing your money is also making the best choices for you in terms of products and fees. As fiduciaries, RIAs are legally obligated to put your interests above their own and to disclose any potential conflicts of interest.” On the contrary, non-RIA advisors, like broker-dealers, operate on a lesser standard, known as a suitability standard. Experts explain: “The suitability standard only requires that an investment be ‘suitable’ for a client. These advisors are not required to disclose potential conflicts of interest or make a client aware of less expensive or more tax-efficient alternatives.” In addition to carrying fiduciary obligations, RIAs are also subject to a variety of regulations:
RIAs register with either the Securities and Exchange Commission (SEC) or state securities regulators. SEC and state regulation helps ensure RIAs serve your interests as fiduciaries…RIAs generally advise on a range of subjects that are part of your financial life, from retirement planning to insurance and estate planning. People of all financial backgrounds may benefit from RIAs. Registered investment advisors are equipped to help people at various life stages, including beginner investors who may not have amassed much yet.
Understanding Registered Investment Advisor Bonds (RIA Bonds)
Registered Investment Advisor Bonds act as a guarantee to the public that all applicable government rules and regulations are followed as business is conducted. Like other types of surety bonds, Registered Investment Advisor Bonds have three parties: the principal (the person obtaining the bond); the obligee (public office requiring the bond); and the surety (the company writing the bond). Typically, RIAs are required by law to post a registered investment advisor bond following state regulations. A RIA Bond s a contract whereby the surety agrees to have secondary responsibility to the state (the obligee) for certain defaults of the registered investment adviser (the principal). The RIA Bond indemnifies the obligee for losses sustained as a result of any covered defaults, up to the amount of the bond.
Watch this brief video about RIA bonds to learn more. At Colonial Surety it is so easy and speedy to obtain a Registered Investment Advisor Bond that it can be done within minutes. We are a direct, and digital writer of RIA Bonds for every state. The premium is based on the amount of the bond required by your state. As a direct bond writer, Colonial offers our lowest possible rate. Unlike agents and middlemen, Colonial does not have any hidden or fluctuating fees. It’s cost-efficient (and fast) to skip the shuffling around and get your Registered Investment Advisor Bond directly from Colonial. To obtain your RIA Bond today, just: get your online quote, enter your info and payment and then download or print your bond—instantly. It’s so easy you can do it now:
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Good To Know: Fees?
What are the fees typically charged by RIAs? According to Forbes:
RIAs generally charge clients annual fees equal to a percentage of the assets they manage. In 2019, the average RIA fee was 1.17% of assets under management (AUM). That means that a client with $100,000 in assets managed by an RIA would pay the firm $1,170 per year for their services. However, other fee types are becoming common as advisors work with clients in new ways…You may be able to pay $200 for an hour of consulting, a flat fee on a monthly basis or a $1,000 fee for a year of all the advice and guidance you need. During an introductory consultation with an RIA (which are generally free), they will help you determine what kind of relationship and pricing makes the most sense for your needs.
Word to The Wise
Some financial professionals describe themselves as “advisers,” while others use “advisor.” Experts explain why—and emphasize that the important word to look out for and understand is actually fiduciary:
Because the Investment Advisers Act of 1940 uses the “er” spelling, there’s some feeling that “registered investment adviser” and “investment adviser representative” should be spelled with the “er” because that’s how the law is written. (But not everyone does this.) When evaluating advisors (or advisers), the important word to look for is “fiduciary.” A fiduciary has your best financial interest at heart, regardless of how they choose to spell advisor.
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