Roles of RIAs and Trustees

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What are the roles of RIA and Trustee ?

Registered Investment Advisors (RIAs) and trustees both play important roles in managing assets on behalf of clients, but there are several key differences between the two:

Fiduciary Duty

RIAs

RIAs are legally bound by a fiduciary duty to act in their clients' best interests. They must prioritize their clients' financial well-being and make decisions that align with their clients' goals and risk tolerance.

Trustees

Trustees also have a fiduciary duty to act in the best interests of the trust beneficiaries. They must manage trust assets in accordance with the terms of the trust agreement and applicable laws.


Scope of Services


RIAs

RIAs offer investment advice and portfolio management services. They help clients develop investment strategies, select securities, and monitor portfolio performance.

Trustees

Trustees have a broader range of responsibilities beyond investment management. They must also oversee the administration of the trust, including recordkeeping, tax filing, and distributions to beneficiaries.


Regulation


RIAs

RIAs are regulated by the Securities and Exchange Commission (SEC) or state securities authorities, depending on the size of their assets under management. They must register with the appropriate regulatory body and comply with rules designed to protect investors.

Trustees

Trustees are subject to state trust laws and may be supervised by state banking or financial services regulators. They must adhere to the prudent investor rule and other standards of care in managing trust assets.


Client Relationship


RIAs: RIAs typically work with individual clients or families who engage them for investment advice and portfolio management services. The relationship is governed by an investment advisory agreement that outlines the terms of the engagement.

Trustees

Trustees are appointed to manage assets held in a trust for the benefit of the trust beneficiaries. The relationship is governed by the trust agreement, which specifies the trustee's powers, duties, and compensation.


Compensation


RIAs

RIAs often charge a percentage of assets under management as their fee. Some may also offer hourly or project-based pricing for financial planning or consulting services.

Trustees

Trustee compensation is usually determined by the terms of the trust agreement or by state law. Trustees may charge a flat fee, an hourly rate, or a percentage of trust assets, depending on the complexity of their duties and the size of the trust.

While both RIAs and trustees have a responsibility to manage assets prudently and ethically, trustees have a more expansive role that includes overseeing all aspects of trust administration. RIAs, on the other hand, focus primarily on providing investment advice and managing client portfolios. Understanding these differences can help individuals and families make informed decisions about who to entrust with their assets based on their specific needs and goals.

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Ramoan Steinway