False Advertising and the 'RIA'

We’ve all done it. We’ve used the term “RIA” as a stand-in for “registered investment adviser” when making a point or to explain what we do. However, some have taken it a step further by using “RIA” as a designation for themselves, which the North American Securities Administrators Association (NASAA) has decided should come to an end.

In its 2011 Coordinated IA Examination Report, the NASAA found that many advisers continue to utilize the term “RIA” as a professional designation and that such use is deemed false advertising. Section 208 of the Investment Advisers Act of 1940 prohibits advisers from engaging in any activity that might imply that the SEC, states, or any other regulator has approved, sponsored, or recommended a business. Oddly enough, however, one’s electronically filed application for registration as an investment adviser and investment adviser representative is met with a final status of “approved.” So why can’t advisers indicate the same in their communications with others?

There are two reasons. First, the use of the term suggests that one is “registered.” As mentioned in its web publication, Information for Newly-Registered Investment Advisers, the SEC allows that advisers may imply that they are registered if they are in fact registered, but this should not be taken further to suggest that the firm has any “…professional competence, education, or special training.”

The term “RIA” is not a formally recognized designation. Professional designations are generally granted by an established authority or other formally recognized body of academic study. CERTIFIED FINANCIAL PLANNER™ professionals are granted use of the CFP® designation, but only after having completed a rigorous course of study. This is also true of the coveted Chartered Financial Analyst (CFA) designation and many others, but these are all hard-won designations with known sponsors with strict academic standards. Use of the term “RIA” would be false and/or misleading, as it could convey a sense that the user has attained some sort of professional competence and that this status has been formally recognized by the issuer of such a designation. To date, there is no organization known to grant such a designation.

There is a second, more practical, reason for not using the term. In many cases firms and their personnel will enter into complex arrangements with other advisers/vendors, and where the explanation of this becomes a necessity at some point before regulators and/or clients, the term “RIA” often becomes difficult to say on a repeated basis. (Spoken quickly, “RIA” has a tendency to become “IRA.”) In fact, many regulatory agencies prohibit staff from using the term for this very reason. Many favor the use of the term “IA” or more simply, “adviser.”

All told, this is a good lesson for firms and their personnel. As the root of the advisory profession is steeped in a long tradition of academia, the public should remember to treat the position with reverence and respect. However, this is also true of those representing the field. You have a fiduciary duty to your clients, and deceptive, false, and/or misleading conduct would certainly violate that duty. So heed my advice: lose the term "RIA", or the SEC may send you a C&D.

If you have any questions about the use of designations or other matters related to IA advertising, please contact one of Regulatory Compliance’s investment adviser specialists at 617-606-7211.


Back to top

Back to Newsletter

Copyright ©2011 - Regulatory Compliance, LLC. All Rights reserved