IRA, RIA, IAR...What's The Difference?

IRA, RIA, IAR...What's The Difference?

August 23, 2017

Keeping up with all of the acronyms in the financial world can be extremely confusing to the average consumer. Believe it or not, there are even people who work in the financial services industry who can't keep up with the meaning behind the different acronyms. There's always something new!

There have been recent regulation changes that affect the consumer and their IRA accounts.  I’m not going to discuss the regulations because it could make your head spin and you would likely need an interpreter. Make sure you have a discussion with your advisor to know your rights. What I would like to do is provide a little light and clarity behind the three acronyms, IRA, RIA, and IAR.

What’s an IRA?

I will start with the easy acronym because most people are familiar with an IRA. An IRA (Individual Retirement Account) is a type of savings account that allows you to save money for retirement. The account has tax advantages because the earnings in the account grow tax deferred (you pay the taxes later) and you do not have to pay the taxes on the funds until they are withdrawn, typically until retirement.  There are two different types of IRAs: Traditional and a Roth IRA’s.

My favorite of the two is the Roth IRA.  If only more people would take advantage of the benefits associated with this type of account, future retirees would be in a far better place financially.  The primary difference between the Roth IRA and a Traditional IRA is the tax benefit each offers. The Roth IRA does not allow for a deduction for the contributions made to the account, however, if you follow all of the rules for the account, your investment earnings will be tax and penalty free, typically in retirement. The Traditional IRA can provide a deduction for the contributions and you will also defer taxes on the investment earning, typically in retirement. Your income level determines if you can contribute to the account (the case with the ROTH IRA) and if you can take a deduction for the contribution (the case with the Traditional IRA).  Make sure you follow all of the investment rules associated with each account.

What’s an IAR?

An IAR (Investment Adviser Representative) is a person who for compensation makes recommendations for securities, manage accounts of clients, and determines which recommendations or advice regarding securities should be given. The average person who is not familiar with the term IAR will consider this person a financial advisor. The term financial advisor, however, is a generic term used by many professionals who may not have any specialized education, training or expertise in the area you are seeking. As an example, there are insurance agents who call themselves financial advisors. The term is used in many cases because it is easier for the public to grasp. If you are unfamiliar with the qualifications of the professional, make sure you ask him or her.

What’s a RIA?

The RIA (Registered Investment Advisor) is a person or firm that is engaged in the investment advisory business and either registered with the state or the SEC (Securities and Exchange Commission). The big deal about a RIA is having a fiduciary duty to clients, which means that they have an obligation to provide suitable advice and always act in the best interest of the client.

To simplify the three acronyms even more, just think of them this way:

IRA= A retirement account

IAR=a compensated person who works for a RIA

RIA= the firm that has a fiduciary duty to the client

The financial services industry is pretty confusing. Just make sure you ask the right questions and determine which type of Financial Advisor (a generic term) is best for you and your needs. Everyone or firm is not a fiduciary.

About Terrell Dinkins, MBA, ChFC®

******************************************************************************

Terrell Dinkins, MBA, ChFC® is an investment adviser representative of and offers investment advisory services through OBN Wealth Advisors, LLC, a registered investment adviser offering advisory services in the State of Georgia and other jurisdictions where registered or exempted. Main Office: 950 Eagles Landing Pkwy, Suite 216, Stockbridge, GA 30281. Tel: 404-723-9780. Website: OBN Wealth Advisors