It’s the 75th Anniversary of the Registered Investment Advisor (RIA), which is worth celebrating. Why? In recognition of the laws that serve as the backbone of the financial industry, which limit risk and protect the average investor. As an RIA and fiduciary, Twelve Points is legally obligated to put the needs of its clients first. Most people don’t realize that not every financial advisor is a fiduciary or RIA. Read on to learn why being an RIA is so important.
In August, 1940, President Franklin D. Roosevelt signed the Investment Company Act and the Investment Advisers Act into law. This occasion marked the creation of the primary laws governing investment firms and investment advisors. It also gave the Securities and Exchange Commission (SEC) the power to regulate them. Prior to this, Wall Street was practically a free-for-all. It was prone to scams and speculation that led to the stock market crash in 1929 and, subsequently, the Great Depression. These events led, understandably, to a loss of confidence in the U.S. financial industry.
While the Securities Act of 1933 and the Securities Exchange Act of 1934 addressed some of these issues, it was necessary for Congress to take further action to regain the trust of the general public and convince people it was safe to invest. The Investment Company Act of 1940 set financial industry standards, dictated the specific functions and structure of investment firms, and defined what a mutual fund was. This precipitated the development of the modern mutual fund, hedge fund and exchange-traded funds (ETFs) industries.
Just as important, the Investment Advisers Act of 1940 required that the advisors themselves abide by certain rules to ensure they act in the best interest of their clients. To prohibit fraudulent behavior, the law requires investment advisers to register with the SEC and provide impartial advice. These Registered Investment Advisors (RIAs) are obligated to uphold a fiduciary standard and avoid potential conflicts of interest.
When we founded Twelve Points, we felt being an RIA was of the utmost importance. Twelve Points is committed to putting clients first and making investment decisions based solely on their best interests. Our advisers receive no compensation for recommending one investment over another. We like to say that we “eat our own cooking” by aligning the interests of the firm with those of our clients. This means that we succeed when you succeed. For more information on our investment philosophy, please contact us.