Are you familiar with the concept of a RIA solicitation agreement? If you`re an investment advisor or a financial planner, it`s important that you understand the ins and outs of these agreements.
A RIA solicitation agreement, or RSA, is a document that outlines the terms of an arrangement between a registered investment advisor (RIA) and an unaffiliated third party. The third party is typically a person or entity that is not affiliated with the RIA, but has agreed to refer potential clients to the RIA in exchange for a fee.
The RSA must comply with the Investment Advisers Act of 1940 and the rules and regulations of the Securities and Exchange Commission (SEC). The SEC requires that the RSA be in writing and provide specific disclosures to potential clients, including the terms of the arrangement between the RIA and the third party.
One important aspect of the RSA is the compensation arrangement. The SEC mandates that the agreement clearly state how the third party will be compensated for referring clients to the RIA. Compensation can take many forms, including a percentage of the fees generated from the referred clients or a flat fee per referral.
Another important consideration is the disclosure of conflicts of interest. The RIA must disclose any conflicts of interest that could arise from the arrangement, such as if the third party has a financial incentive to refer clients to the RIA.
It`s also important to note that RSAs are only permitted under certain circumstances. For example, the SEC prohibits the use of RSAs in certain situations, such as when the referring party is a government entity or if the referral is made in connection with an investment adviser`s offer or sale of securities.
In conclusion, if you`re an investment advisor or financial planner, it`s essential that you understand the regulations surrounding RIA solicitation agreements. Ensure that your RSA complies with the SEC guidelines and provides adequate disclosure to potential clients. By doing so, you can help build a successful and ethical business relationship with third-party referrers.