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What is a Registered Investment Advisor (RIA)?

An RIA is an asset manager that is registered with the SEC (in whatever state(s) they operate) and complies with certain rules and regulations.

RIAs typically earn their revenues through management fees, which are almost always based as a percentage of assets under management — the average management fee is between 1% - 2%. Having management fees as a percentage of assets allows for the interest of both parties to align - as the assets grow, so does the nominal amount of fees the RIA earns.

As far as the SEC is concerned, RIAs are responsible for acting in the best interests of their clients, which means restricting them from recommending a product just to generate a commission. An RIA is given discretion over the decision-making in the account to the extent the client allows for it.

Generally, it is better to work with an RIA versus a general broker, as a broker only has to recommend investments that are suitable for the client...not those that are necessarily in the client’s best interests.

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Keywords: financial planning, asset manager, management fees, commissions, Assets Under Management (AUM),