That being the case, doing the due diligence that separates investing successes from failures depends on how well you understand the market and how it works.
That’s where registered investment advisors, or RIAs, come in. Learn everything you need to know about what RIAs do with Christina and how they can make all the difference in your investing success.
What Is a Registered Investment Advisor?
Registered investment advisors are professionals who serve their clients as indispensable resources for financial advice.
The financial world is filled with investment opportunities, so much so that putting together a successful investment strategy, let alone a coherent one, can be an overwhelming obstacle for the average investor.
Securities, bonds, real estate, mutual funds, and emerging sectors like cryptocurrency and blockchain investments combine to create a complex financial world.
Registered investment advisors address the complexities of finance that would otherwise deter investors from participating in the market.
RIAs are generally companies or firms that function by providing investors an essential service: guiding investors through the complexities of the market, creating a clear, simplified investment strategy, and helping them generate more substantial returns.
The financial sector has many bodies claiming to serve a similar advisory function as RIAs. However, RIAs are distinct from other advisory bodies due to a few key features that make them all the more attractive to investors.
What Makes Registered Investment Advisors Different?
While investors can get financial advice from many places, few entities have the same accountability and credibility as RIAs. That’s because RIAs abide by three cardinal tenets that define them compared to their financial peers.
- Obligation to the Fiduciary Standard
- SEC and State Securities Regulator Registration
- Functions Beyond Investment Advice
What Is an RIA’s Fiduciary Obligation?
A fiduciary is a technical term for someone entrusted with legal or financial services or decisions on behalf of another party or parties. Registered investment advisors are, in essence, fiduciaries working in trust with their clients.
The legal basis upon which registered investment advisors operate is set principally on their fiduciary obligation to the parties they serve.
RIAs must conduct themselves in such a way that demonstrably shows they are working in their clients’ best interest. In a legal sense, RIAs are bound by law to do their utmost to earn you a better return. Additionally, they are obligated to disclose any potential conflicts of interest they may have.
Other such advisory bodies may not have the same seal of approval RIAs have. That’s because RIAs are committed to a higher standard and held to account by their registered status with government regulators.
Why Do RIAs Register With the SEC?
Registered investment advisors register with regulating bodies like the U.S. Securities and Exchange Commission (SEC) to prove their commitment to higher standards according to the Investment Advisers Act of 1940. This differs from financial advisors like Certified Financial Planners (CFP), who are not legally required to act as fiduciaries.
An RIA’s pledge to serve their clients in good faith is backed by their registration with financial regulators like the federal Securities Exchange Commission or other state securities regulators.
By registering with these governmental bodies, RIAs submit themselves to a standard of transparency and scrutiny that showcases their credibility and commitment to their fiduciary obligations.
Registration with these bodies allows prospective clients to assess a given RIA’s capability. Resources like FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure site provide investors with pertinent details that report on a given firm.
Not every advisory body may submit themselves to the registration with government regulators. RIAs are required to do so, breeding confidence in their ability and fiduciary obligation to their clients.
What Do RIAs Do Beyond Investment Advice?
Registered investment advisors set themselves apart from their peers by taking on responsibilities beyond investment advice.
RIAs function in many ways as an all-in-one financial guide, taking on advisory roles in wealth planning strategies concerning estate and insurance plans.
An effective investment program hinges on far more than investments alone. RIA’s are a rich resource with a well-rounded background in market trends, tax codes, and big-picture approaches to investing that create more robust programs going forwards.
RIAs are the complete package: their commitment to their investors is ironclad; credible authorities back them; they serve many functions that contribute to an overall program that strengthens your finances.
What Do Registered Investment Advisors Do?
Registered investment advisors help their clients increase their wealth when all is said and done. As part of their registration with financial regulators, a given RIA must disclose pertinent information about how they operate and their overall investment strategy, amongst other things.
RIAs can vary widely in how they advise clients on their assets and the areas of expertise that drive them. Moreover, clients may have vital input regarding where they feel they need to be advised.
These are a few areas where RIAs may be able to help you grow your finances:
- Wealth management
- Insurance plans
- Budget planning
- Retirement strategies
- Investment strategies
- Debt refinancing
- Estate management
How Do Registered Investment Advisors Work?
As per their fiduciary obligations, the core purpose of an RIA is to earn you a better return. How investors interact with RIAs and how RIAs put that purpose into practice will give you a better idea of how these entities work.
More often than not, RIAs are decently sized companies with financial professionals serving your interests. They can range from big-name investment funds that help vast numbers of clients to lone advisors with one-on-one, intimate relationships with a handful of clients.
Prospective clients reach out to the RIA they’d like to consult; sometimes, RIAs may even reach out to specific high-net-worth individuals.
After an initial consultation, and if both parties decide to go forward, clients invite the advisor to manage their assets. The RIA sets up an investment program that utilizes the client’s capital. RIAs earn their income by levying a fee based on the total value of the assets they manage for their clients.
How Much Does It Cost To Invest With an RIA?
RIAs are not exclusive to wealthy people. For the most part, RIAs charge annual fees proportional to their assets under management, AUM, allowing excellent access to their financial knowledge.
These proportional fees are taken at a percentage rate of their client’s assets’ total value, typically around 1%. Therefore, the annual fee for the average registered investment agent would accrue around 2,000 dollars from a client with a total asset value of $200,000.
Not all RIA firms operate under this system; different advisors may utilize different fees. Furthermore, the scope of the RIA’s involvement in the client’s assets may alter the fees they use.
Performance fees may reward RIAs when they demonstrably grow a client’s wealth at a specific rate. Consultation sessions may charge an hourly rate; sessions carried out monthly could utilize a monthly flat fee.
Consultations with an RIA possess a high degree of negotiation regarding how you pay. In most cases, advisors will be open to whatever works for their clients.
How Are RIAs Investing Now?
As leading figures in the financial world, following the movements of registered investment advisors gives a strong indication of what parts of the economy are ripe for investment and which aren’t.
While RIAs may assist in many financial areas, the most prominent area in which they help investors is in the securities exchange — stock trading.
However, recent trends have encouraged many professional RIAs to reorient towards a strategy that favors alternative investment — non-securities.
A diversified portfolio is a stable portfolio. If the economy takes a downturn, portfolios with a rich range of diverse investments can better endure shifts in the market. That’s why many RIAs are turning towards one of the most stable asset classes investors can choose: real estate.
Why Are RIAs Favoring Real Estate?
Real estate has distinctive properties that set it apart from other classes. These four properties of real estate contribute to its renowned stability,
- Scarcity: Real estate is inherently scarce because land is a finite resource, and development happens slowly due to its costliness in time and money. The scarcity of real estate keeps low supply and high demand, which results in consistent, high value.
- Improvability: Property has the opportunity to improve with additions and renovations that increase its value. Investors can directly impact the value of their real estate assets, regardless of market trends.
- The Permanence of Investment: Capital infusions into real estate are virtually permanent, deepening the stability of property as an asset. Foundational investments into a property like electrical work and plumbing are clear examples of how capital invested into a property becomes infused for the long term.
- Location: A property’s location can make all the difference in its value. Because location has such a drastic impact on real estate value, investors are empowered to make better decisions on high-value properties by selecting locational attributes.
What Are the Benefits of Real Estate?
Real estate’s distinctive qualities translate into crucial benefits for any effective investment strategy.
RIAs are increasing their appraisal of real estate’s importance because of critical benefits like these:
- Positive cash flow
- High appreciation
- Inflation hedge
- Tax breaks
Positive Cash Flow
Real estate investments like rental properties give investors a huge advantage with their reliable, positive cash flow.
Cash flow measures the money going into and coming out of a given investment; positive cash indicates that an investment generates more money than is being spent.
Cash flow is a crucial metric for identifying worthwhile investments. Rental properties produce reliable cash flow because rental payments necessarily exceed operating expenses. Property owners can set monthly rent, ensuring that their unit brings in more monthly money.
The positive cash flow of rental properties makes them an increasingly popular component of an effective investing strategy.
Few investment opportunities have the guaranteed appreciability of real estate. Any investor wants an increase in value from a good investment.
Appreciabilty measures the increase in value of an asset over time. Historically, real estate has performed remarkably well in appreciability. Since the 1960s, the sales price of homes has grown yearly. Real estate’s inherent scarcity profoundly affects its ability to appreciate.
In a given real estate market, the finite amount of land and slow pace of development maintains material conditions that make appreciation of real estate all but certain. High appreciable assets are ideal for long-term investment programs, making real estate a must-have for your portfolio.
Inflation can devastate your savings if you don’t have a financial bulwark to defend against it.
The diminishing purchasing power of the dollar and rising prices will wither away your retirement funds; when inflation exceeds the earned interest on your savings accounts, your money is virtually losing money.
Real estate assets don’t only protect you against inflation. They can be a hedge that grows your wealth while markets flounder.
Rental properties are insulated against rising prices; they absorb increased expenses and pass them on to tenants by increasing rent. If anything, rental properties produce more value as rents rise.
A robust investment strategy accounts for downturns in the economy. With inflation projected to worsen in the coming year, real estate assets will help you offset its effects and protect your finances.
Growing your finances is only one-half of an effective investment strategy; minimizing losses is equally important. Utilizing tax break opportunities is a vital part of optimizing your return. Few investments have the same opportunity for tax breaks as real estate.
Operating expenses on real estate can be written off at the end of the year. Payments on property insurance, property taxes, mortgage interest, repairs, and maintenance allow investors to deduct their taxable income.
Proactive tax breaks like depreciation effectively give property owners a deductible stipend every year throughout a property’s useful life.
Incorporating assets that give you tax deductions builds a more complete return; you keep more of what you earn.
Should You Consult With an RIA?
No one is required to have an RIA to invest. However, RIAs are becoming increasingly popular.
As the financial world grows more complex every day, turning to registered professionals for advice can make all the difference in helping secure more robust returns. Most consultations with RIAs are free, so talking doesn’t hurt.
Individual investors can’t possibly have the background, resources, and connections that RIAs have. People serious about getting the best possible return on their investment should consider reaching out to professional firms.
Investment Portfolios: Start Here
Christina has found success in the most hyper-competitive real estate market in Los Angeles: the Westside.
Over four decades, we’ve helped our clients realize excellent returns under every economic condition.
Get started with Christina today and optimize your investment for tomorrow.