RIA vs. Financial Advisor: Which Should You Choose?

Registered investment advisors (RIAs) and other financial advisors offer services like investment advice, wealth management and retirement planning. However, there are important differences in how they are regulated, how they earn their fees and the specific services that they can offer. Whether you’re beginning to invest, preparing for retirement or managing a complex portfolio, knowing the type of advisor that you’re working with can help you make strategic financial decisions and build a trusted relationship.

RIA vs. Financial Advisor: What’s the Difference?

At first glance, “RIA” and “financial advisor” may seem like interchangeable terms,. However, they often refer to different types of professionals with varying credentials, responsibilities and regulatory oversight. The Securities and Exchange Commission (SEC) and state regulators register RIAs, which stands for registered investment advisors, and holds them to a fiduciary standard. Financial advisor is a broader term that can refer to a wide range of professionals — including RIAs, brokers, insurance agents and planners.

Regulatory Oversight

RIAs register either with the SEC or a state securities authority, depending on their assets under management (AUM). They must also disclose their business practices, fees and conflicts of interest through a Form ADV filing.

Financial advisors regulations, comparatively, can come from different bodies. These include the Financial Industry Regulatory Authority (FINRA) for brokers, or state insurance departments when they sell annuities or life insurance. The law holds them to a “suitability standard,” which means that their recommendations must only be suitable for the client, not necessarily the best possible option. These lower standards can lead to conflicts of interest, particularly when advisors earn commissions from product sales.

Fiduciary Duty

One key difference between RIAs and other financial advisors is the fiduciary standard. RIAs are legally required to act in their clients’ best interest. They must be upfront about conflicts of interest, use clear pricing and give advice that supports your financial goals.

Financial advisors who are not RIAs don’t have the same legal duty. Some may earn commissions for selling certain products, which could influence their recommendations. Even if they choose to follow a fiduciary approach, it isn’t legally required. It’s important to ask any advisor what standard they follow and whether it’s backed by law.

Fee Structure

RIAs earn money using a fee-only model, which is usually based on a percentage of assets under management, a flat fee, or an hourly rate. This reduces the likelihood of conflicts of interest because they do not receive commissions and can align the advisor’s success with the client’s financial performance.

Financial advisors who are not RIAs, comparatively, may earn commissions by selling financial products. This can create incentives that don’t always align with a client’s best interests. Therefore, you should confirm with an advisor how they earn money to assess their objectivity.

Services Offered

RIAs often operate independently or through fiduciary-focused firms. They use this freedom to offer comprehensive financial planning services without relying on proprietary products or limited platforms.

Other types of financial advisors, on the other hand, can range from comprehensive planners to product specialists. Some may focus solely on investment management, while others primarily sell insurance or annuity products.

Clients who choose an RIA may find them better suited for holistic advice and ongoing planning support. But, if you have narrow financial needs — such as purchasing a life insurance policy — find a financial advisor who specializes in that area.

RIA vs. Financial Advisor: Which One Is Right for You?

Choosing between an RIA vs. another type of financial advisor comes down to having a clear idea of your financial goals, your need for ongoing planning support and how much value you place on fiduciary responsibility. If you’re looking for someone to provide holistic advice, manage your investments transparently and act in your best interest at all times, an RIA may be the stronger choice.

However, not all financial situations require a full-service RIA. If you need guidance on a specific issue, like buying insurance or setting up a 529 plan, you may be content with a financial advisor. When evaluating financial professionals, consider asking the following questions:

Are you a fiduciary?
Tell me about your compensation.
What licenses or designations do you hold?
What types of clients do you typically work with?
How do you customize services for clients?

Ultimately, the most important factor is whether your advisor can provide objective, conflict-free advice for your specific goals.

Bottom Line

A client taking notes from an online presentation by her RIA.

When comparing an RIA with other types of financial advisors, the best choice depends on your financial needs, the level of service you expect and how much you value fiduciary responsibility. RIAs are required to act in your best interest, offer fee transparency and can provide comprehensive financial planning services. Other financial advisors may offer valuable insights as well, but it’s important to be aware of how they’re compensated and regulated.

Tips for Financial Planning

A financial advisor can help you create and manage a financial plan for short- and long-term goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to build your savings up consistently, consider setting up automatic transfers from your checking to your savings accounts. This approach could help you make saving a routine part of your financial life.