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How to Become a Registered Investment Advisor in 5 Steps

an investment advisor working with clients
an investment advisor working with clients

Becoming a registered investment advisor (RIA) is something you might consider if you'd like to help investors manage their assets. If you're interested in how to become an investment advisor, getting a college degree in finance or a related field is usually the first step. There are, however, some other requirements you'll need to meet before you can begin charging clients for your advisory services. When you're ready to grow your client base, SmartAsset's SmartAdvisor can help.

Understanding Registered Investment Advisors (RIAs)

What is a registered investment advisor and what do they do? In simple terms, RIAs work with individuals and businesses to manage their investment portfolios. A registered investment advisor may work with high-net-worth clients and their primary focus is investing, though they may offer financial advice in other areas.

RIAs are fiduciaries, meaning they're obligated to act in the best interest of their clients at all times. They're also required to register with the U.S. Securities and Exchange Commission (SEC) or their state regulatory agency, if applicable.

In exchange for their services, registered investment advisors can charge their clients fees. Advisors may charge an hourly rate, a flat fee or a percentage of assets under management. A typical financial advisor's fee is around 1% annually, though a registered advisor may charge more or less, depending on the services offered and the types of clients they work with.

What Does a Registered Investment Advisor Do?

Registered investment advisors work on behalf of their clients to help them manage their investments. In terms of what that actually includes, an advisor's duties and responsibilities can include the following:

  • Discussing client goals and using those conversations as a framework for selecting investment options.

  • Assessing client portfolios to see how well they align with client goals.

  • Staying up to date on economic trends that have the potential to impact client portfolios.

  • Meeting with clients to discuss their portfolios and develop strategies for managing them.

  • Analyzing clients' tax situations to find areas where they may be able to glean savings.

Investment advisors rely on a variety of skills to perform those duties. Some of the most critical skills for an investment advisor include good communication skills, analytical skills, mathematical skills and organizational skills.

How to Become an Investment Advisor, Step by Step

an investment advisor working with clients
an investment advisor working with clients

As mentioned, getting an education is typically a precursor to becoming an investment advisor. That may mean completing only a bachelor's degree, but some advisors may hold master's degrees as well. Here's what comes next if you're ready to get started on the investment advisor career path.

Step 1: Take the Series 65 Exam

The Series 65 exam is a multiple-choice test that's designed to gauge your financial knowledge. Some of the areas the test covers include federal securities law and investment advice. The Financial Industry Regulatory Authority (FINRA) administers the test. FINRA oversees the issuance of a number of securities licenses.

To pass, you must get 94 out of 130 questions correct. The test has 140 questions in total, but the first ten are pretest questions that don't count toward your score.

Step 2: Consider Getting Certified

Investment advisors who pass the Series 65 exam are not required to hold additional professional designations. However, you may consider obtaining one or more credentials to enhance your knowledge and expertise so you can attract more clients.

Some of the designations you might pursue include:

  • Certified Financial Planner (CFP)

  • Chartered Investment Analyst (CFA)

  • Chartered Financial Consultant (ChFC)

  • Chartered Investment Counselor (CIC)

Each of these designations has its own requirements you'll need to meet in order to qualify. Holding certain designations may allow you to waive the Series 65 exam as a prerequisite for registering in some states.

Step 3: Decide Where to Register

Investment advisors must register with the SEC or with their state securities agency. The one you have to register with primarily hinges on size and the amount of assets being managed.

RIAs with $100 million or more in assets under management must register with the SEC; investment advisors below that threshold may register with the state securities commission instead. In states where there are no regulations for advisors, RIAs can register with the SEC.

If you're working as an investment advisor on behalf of an investment company, you're required to register with the SEC. Assets under management are irrelevant.

Step 4: File Form ADV

To register with the SEC or a state securities commission, you must first create an online account with the Investment Advisor Registration Depository (IARD). Doing so allows you to file Form ADV, which is your registration document.

There are two parts to the form. Part one includes questions about your business structure and ownership, the number of clients you have, your employees, affiliations, business practices and whether you've been subject to any disciplinary actions.

The second part of Form ADV is your disclosure. This is a written document in which you describe the types of services you offer, how you're paid, your professional background and any conflicts of interest that might exist. This disclosure must be made available to clients and prospects who are considering using your services.

Step 5: Finalize Your Registration

Once the SEC or state securities commission receives your Form ADV, it's subject to review. Additional information may be requested or you may be asked to explain or clarify answers that you've provided. You'll also need to create a written document outlining your compliance program, which explains your operating procedures in detail.

Assuming that your registration is approved, you'll be able to start working with clients. You'll need to update your Form ADV annually to reflect any changes to your business, including the number of clients you work with or the total assets you have under management.

You may need to post a surety bond if you're registering with your state securities commission. A surety bond is typically required when an investment advisor is unable to meet minimum net worth guidelines.

Registered Investment Advisor Next Steps

After you've registered as an investment advisor, you're ready to begin offering investment advice to clients. If you're starting from scratch with your client base, you'll need to consider how you'll go about finding them.

You might try cold-calling or cold-emailing first. Those forms of outreach can be time-consuming, but they're tried and true methods for finding clients. Networking is another option, as you may have people in your network who might be willing to offer referrals to help you get your first clients.

If you're trying to focus your time on other areas of your business, you might try an online lead-generation tool instead. SmartAdvisor, for instance, can bring qualified leads to you, saving you valuable time. You can decide which leads you'd like to follow up on.

Bottom Line

An advisor working with a client on investments
An advisor working with a client on investments

There's no shortcut for how to become an investment advisor and the process can take some time to complete. It may be worth the wait, however, if you're hoping to move your career forward and expand your horizons.

Tips for Growing Your Advisory Business

  • Finding the right clients to work with can take time and it's easy to spend a large part of your daily schedule on prospecting. Using an online tool to generate leads can help to streamline that part of your business operations so that you're free to focus on serving your clients.

  • Social media marketing can help you grow your business if you're creating content that's designed to attract your ideal clients. If you're not leveraging digital marketing's potential yet, that's something you may want to devote some time to doing if you're hoping to increase your visibility online.

Photo credit: ©iStock.com/skynesher, ©iStock.com/BraunS, ©iStock.com/Jirapong Manustrong

The post How to Become a Registered Investment Advisor in 5 Steps appeared first on SmartReads by SmartAsset.