How is an Investment Advisor structured?
It is illegal for RIAs to take custody of client funds. As a result, RIAs must use broker/dealers (i.e. stockbrokers) to hold securities in client accounts. The client then signs an advisory agreement with the RIA, which provides the RIA with authority to buy and sell securities in the client’s account. A good advisory contract will allow the client to terminate the services of the RIA at any time without delay or penalty (such as a surrender charge) to the client.
