How Does an RIA Work? Fiduciary Duties, Fees, and Disclosures

A Registered Investment Adviser, or RIA, is a firm or individual paid to give investment advice or manage money, registered with either the Securities and Exchange Commission or a state securities regulator, and legally required to act in each client’s best interest. That last part is what separates an RIA from many other financial professionals. The rules come from the Investment Advisers Act of 1940, which requires anyone paid to advise others about securities to register, follow a fiduciary standard, and disclose their business practices, fees, and conflicts of interest in detail.¹ Everything else about how an RIA works — how it charges, what it must tell you, where your money sits — flows from that framework.

What “Fiduciary” Means in Practice

An RIA is a fiduciary. Brokers who are not also advisers generally have to recommend “suitable” investments; a fiduciary has to act in your best interest across the whole relationship, not just at the moment of a specific recommendation.² That duty breaks down into two obligations.

Duty of Care

Before making recommendations, an adviser has to develop a reasonable understanding of your financial situation, goals, risk tolerance, and investment experience. The advice itself has to rest on a genuine investigation of the investments involved. Marketing materials or incomplete data are not enough.²

Duty of Loyalty

An adviser cannot put its own financial interests ahead of yours. When a conflict of interest exists, the adviser must either eliminate it or disclose it fully enough that you can make an informed choice.² A typical example involves 12b-1 fees: if the adviser receives trailing commissions for recommending one share class of a mutual fund while a cheaper share class of the same fund exists, that conflict has to be disclosed in the firm’s Form ADV, along with how the firm addresses it.³

Federal law also flatly bars advisers from using schemes to defraud clients, engaging in deceptive practices, or trading from the firm’s own account with a client without written disclosure and consent.⁴ Violations can bring civil penalties, censure, cease-and-desist orders, or a bar from the industry. Willful violations can also lead to criminal prosecution.

Who Regulates Your RIA

Whether your adviser is overseen by the SEC or a state securities regulator comes down mostly to how much money the firm manages. Roughly, firms with less than $100 million in assets under management register with their home state, firms between $100 million and $110 million may choose either, and firms at $110 million and above must register with the SEC.⁵ Once a firm is SEC-registered, it only has to drop back to state registration if its assets fall below $90 million, a cushion that prevents constant switching when assets fluctuate near the line.⁶

The practical takeaway for a client: the regulator’s name on your adviser’s file tells you where to look for their public disclosures and where to send a complaint if things go wrong.

How RIAs Get Paid

An RIA’s fee arrangement has to be laid out in both the client agreement and the firm’s brochure. The common structures are:

A percentage of assets under management, typically 0.50% to 2.00% per year. This is the most widely used model.
Hourly rates, billed for time spent.
Fixed fees for a defined scope of work, such as building a financial plan.
Subscription fees, charged monthly or quarterly for ongoing advisory access.
Performance-based fees, which are only allowed for certain clients.

The brochure also has to explain whether fees are deducted directly from your account or billed to you separately, and how refunds work if you end the relationship in the middle of a billing period.⁷

The Performance-Fee Limit

Federal law generally prohibits RIAs from charging fees based on investment performance, on the view that such arrangements can encourage excessive risk-taking. There is an exception for “qualified clients,” who are considered wealthy and sophisticated enough to accept the added risk. As of 2026, a qualified client must have at least $1,100,000 under management with the adviser or a net worth of more than $2,200,000. The SEC adjusts these thresholds for inflation periodically, with the next adjustment scheduled on or about May 1, 2026.⁸ Knowledgeable employees of the adviser and qualified purchasers under the Investment Company Act also qualify.⁹

What Your RIA Must Disclose to You

The main disclosure document is Form ADV, which every RIA files to register and continues to update as long as it operates. It has three parts, each doing something different.¹⁰

Part 1A is the census data filed with regulators: ownership, control persons, types of clients, assets under management, business affiliations, and disciplinary history. Item 11 requires disclosure of felony convictions, investment-related misdemeanor charges, SEC or state regulatory actions, and revoked professional licenses, going back ten years in most categories.¹¹

Part 2A is the firm brochure, written in plain language and given directly to you. It has to describe the advisory services, fee schedule, methods of analysis, investment strategies, and the risks involved. It also has to cover whether the firm or its employees receive compensation from selling investment products, the firm’s disciplinary history, and the backgrounds of key personnel.⁷

Part 3 is Form CRS, the Client Relationship Summary. It’s limited to two pages and designed for retail investors. It summarizes services, costs, conflicts, and disciplinary history, and includes specific conversation-starter questions the SEC wants you to ask, such as how the adviser is compensated and what authority the adviser has over your account. Firms must deliver Form CRS to retail investors before or at the time you enter into the relationship.¹²

How Your Money Is Held

When an RIA has custody of client funds or securities, meaning it holds them directly or has the authority to access them, the safeguards are strict. A qualified custodian — a bank or a registered broker-dealer — has to hold the assets. Client money cannot be commingled with the firm’s own money; it must sit in separate accounts under either your name or the adviser’s name as agent for you.¹³

The custodian has to send you account statements at least quarterly, showing balances and every transaction. The adviser has to tell you in writing who the custodian is, how your assets are held, and to compare the custodian’s statements against any reports the adviser sends you. On top of that, an independent public accountant has to conduct a surprise examination of client assets at least once per calendar year, at a time the accountant chooses.¹³

The Ongoing Obligations Behind the Scenes

Registration is not a one-time event, and the ongoing duties shape the service you actually receive.

Every registered adviser has to designate a chief compliance officer to administer written compliance policies, and the firm has to review those policies at least once a year. Failing to adopt and implement reasonable compliance procedures is itself treated as a violation of the anti-fraud provisions of the Advisers Act.¹⁴

Firms have to keep detailed records of client communications, transactions, advisory contracts, advertisements, and performance calculations. Most records must be preserved for at least five years from the end of the fiscal year of the last entry, with the first two years kept in a readily accessible office location.¹⁵

Every registered adviser also has to file an annual updating amendment to its Form ADV within 90 days after the end of its fiscal year. For firms on a calendar year, that means the end of March.⁵ Between annual updates, the brochure has to be updated promptly whenever information becomes materially inaccurate.

Data protection is part of the picture too. Advisers must comply with Regulation S-P, which requires written policies for safeguarding customer financial information. Under amendments finalized in 2024, firms also have to maintain incident response programs that include timely notification to individuals affected by a data breach involving sensitive customer information.¹⁶ The SEC’s examination priorities for 2026 specifically include reviews of data loss prevention, access controls, and firms’ responses to cyber incidents such as ransomware attacks.¹⁷

If you want to check on your own adviser, start with the Form ADV and Form CRS. Both are public. Read what the brochure says about fees, conflicts, and disciplinary history, and use the Form CRS conversation prompts in your next meeting.

1
Office of the Law Revision Counsel. 15 U.S. Code 80b-3 – Registration of Investment Advisers
2
Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
3
U.S. Securities and Exchange Commission. Frequently Asked Questions Regarding Disclosure of Certain Financial Conflicts Related to Investment Adviser Compensation
4
Office of the Law Revision Counsel. 15 U.S. Code 80b-6 – Prohibited Transactions by Investment Advisers
5
U.S. Securities and Exchange Commission. Electronic Filing for Investment Advisers on IARD
6
eCFR. 17 CFR 275.203A-1 – Eligibility for SEC Registration; Switching to or From SEC Registration
7
U.S. Securities and Exchange Commission. Appendix C Part 2 of Form ADV
8
SEC.gov. Inflation Adjustments of Qualified Client Thresholds
9
U.S. Securities and Exchange Commission. Exemption To Allow Investment Advisers To Charge Fees Based Upon a Share of Capital Gains Upon or Capital Appreciation of a Clients Account
10
U.S. Securities and Exchange Commission. Form ADV – General Instructions
11
SEC.gov. Form ADV – Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Advisers (Part 1A)
12
SEC.gov. Form ADV, Part 3 – Instructions to Form CRS
13
eCFR. 17 CFR 275.206(4)-2 – Custody of Funds or Securities of Clients by Investment Advisers
14
eCFR. 17 CFR 275.206(4)-7 – Compliance Procedures and Practices
15
eCFR. 17 CFR 275.204-2 – Books and Records to Be Maintained by Investment Advisers
16
U.S. Securities and Exchange Commission. Regulation S-P – Privacy of Consumer Financial Information and Safeguarding Customer Information
17
SEC.gov. Cybersecurity