How To Become a Registered Investment Advisor

How To Become a Registered Investment Advisor

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Are you looking to become an RIA? If so, there are a few things you will need to know. Read on for some helpful information on starting the process of becoming an RIA.

Licensing and Qualifications
The first step to becoming an RIA is to pass the Series 65 (Uniform Investment advisor Law) exam. Although this exam is administered by FINRA, takers are not required to be sponsored by a broker-dealer as they are for most other securities-related exams. The test itself covers federal securities laws and other topics related to investment advice. It has 140 multiple choice questions, 10 of which are pre-test questions that will not count towards your final grade. Students are allowed three hours to take the exam and must get a grade of at least 72% to pass.

It is important to note that while no other licensure or designations are required in order to become an RIA, most advisors will find it rather difficult to bring in business without additional qualifications, such as the CFP® or CFA designation. In fact, many states will actually allow advisors who carry the following designations in good standing to waive the exam:

  • Certified Financial Planner® (CFP®)
  • Chartered Financial Analyst (CFA)
  • Chartered Investment Counselor (CIC)
  • Chartered Financial Consultant (ChFC)
  • Personal Financial Specialist (PFS)

The Registration Process
The first step in the registration process is to create an account with Investment Adviser Registration Depository (IARD), which is managed by FINRA on behalf of the SEC and states. There are a few states that do not require this, so advisors who only do business in those states do not have to use this system. Once the account is open, FINRA will supply the advisor or firm with a CRD number and account ID information. Then the RIA can file the necessary forms with their state.

Battle for Regulatory Oversight
Although the SEC and the states have the responsibility of overseeing RIAs, FINRA has spent the past few years lobbying Congress to change this. FINRA claims that research shows that the SEC cannot adequately oversee the RIA industry by itself, and either needs more resources to do so or else needs to cede oversight of RIAs to a Self-Regulatory Organization(SRO) such as FINRA.

Brokers and securities licensed reps only have to meet the suitability standard, a much lower standard of conduct, which only requires that a given transaction performed by a broker must be "suitable" for the client at that time. The fiduciary standard requires that advisors unconditionally put their clients' best interests ahead of their own at all times and in all situations and circumstances. FINRA oversight would likely put an end to this standard for advisors.

The Bottom Line
Registered Investment advisors enjoy greater freedom than their counterparts in the industry who work on commission. They are also required to adhere to a much higher standard of conduct, and most advisors feel strongly that this should not change. Of course, those who register to become RIAs must also contend with the normal startup issues that most new business owners face, such as marketing, branding and location, in addition to the registration process. For more information on becoming an RIA, visit the SEC website.

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