What it is
A Registered Investment Adviser (RIA) is a firm or individual registered with the SEC or a state to provide investment advice. When people search for RIA alternative investments, they usually mean assets outside public stocks, bonds and cash, often accessed through a private fund.
A private fund pools money from eligible investors and is managed by a fund manager under a defined strategy. Private funds are typically offered under exemptions from registration, such as SEC Rule 506(b), which does not allow general solicitation, or Rule 506(c), which allows general solicitation but requires that all purchasers be accredited and that the issuer take reasonable steps to verify that status.
Many private funds are limited to accredited investors under SEC Rule 501(a). Categories include individuals meeting the rule's income or net worth tests, holders in good standing of Series 7, 65 or 82 licenses (added by the August 2020 amendments), and a fund's knowledgeable employees. Spousal equivalents may be included when applying the tests, and entities or family offices with over $5 million in investments or assets can qualify, as can RIAs and exempt reporting advisers. Private fund investments are speculative and illiquid and can lose all of their value.
How it’s traditionally been approached
RIAs have traditionally built portfolios around a mix of public equities, fixed income and cash, tailored to a client's goals, time horizon and comfort with risk. Alternatives have sometimes been considered as an additional category within that broader planning conversation.
When an adviser looks at a private fund, the process often includes reviewing the manager's background, strategy, fees, structure, reporting practices and the offering documents. Many advisers also look at how a fund's limited liquidity fits a client's cash needs and overall plan.
Some advisers evaluate funds directly, while others use funds of funds, secondaries or outside due diligence resources to help with research. None of these approaches is right for everyone, and each carries its own costs, risks and trade-offs. Past performance does not guarantee future results.
How the right fund manager may help
The right independent fund manager may help by explaining a strategy clearly, describing how the fund is structured, and walking through the risks in plain language. A good conversation can make the offering documents easier to understand rather than replacing them.
A first conversation is generally informational. Questions worth asking include: What is the strategy and how does it work? What are the fees and how are they charged? How long is capital typically committed, and what are the redemption limits? Which Rule 506 exemption is being used, and how is accredited status verified? Will investors receive a Schedule K-1, and how is reporting handled?
It can also help to ask about conflicts of interest, who serves as auditor and administrator, and what independent due diligence has been done. Because The Hastings Fund is an independent directory and not an adviser or broker-dealer, readers should take what they learn to their own licensed financial, legal and tax professionals. Any offering is made only by the issuer through its own offering documents.
The bigger picture
Decisions about alternatives are rarely only about numbers. Money held in illiquid vehicles can affect how secure you feel, how flexible you are when life changes, and how well you sleep. Being honest about your comfort with uncertainty and your need for access to cash is part of a healthy approach.
Taking time to learn, ask questions and involve trusted professionals can bring peace of mind whatever you decide. If financial stress is affecting your wellbeing, resources such as Providers.plus may help you find supportive care, and in a crisis you can call or text the 988 Lifeline in the U.S.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results, and no outcome is promised or implied.
- Tax treatment, including how items like QSBS under Section 1202 or K-1 reporting apply, depends on individual circumstances, so consult your own tax adviser.
- The Hastings Fund is an educational directory, not a broker-dealer, funding portal or investment adviser, and it does not recommend, endorse or rank investments. Nothing here is an offer to sell or a solicitation of an offer to buy any security.
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Create an investor account →Frequently asked questions
What are RIA alternative investments?
RIA alternative investments are assets outside traditional stocks, bonds and cash that a registered investment adviser may discuss with clients, often through a private fund. They are generally more complex and less liquid than public investments. Whether any are appropriate depends on the individual and should be discussed with a licensed adviser.
Can an RIA invest clients in private funds?
Yes, an RIA may be able to consider private funds for clients who are eligible, subject to the adviser's fiduciary duties, the fund's offering documents and applicable rules. Eligibility often depends on accredited investor status. Each situation is different, so clients should ask their adviser how it applies to them.
Who qualifies as an accredited investor under Rule 501(a)?
Accredited investor status under Rule 501(a) includes individuals meeting the rule's income or net worth tests, and holders in good standing of Series 7, 65 or 82 licenses following the August 2020 amendments. It also covers a fund's knowledgeable employees, entities and family offices with over $5 million in investments or assets, and RIAs and exempt reporting advisers. Spousal equivalents may be included when applying the tests.
What is the difference between Rule 506(b) and 506(c)?
Rule 506(b) offerings cannot use general solicitation, while Rule 506(c) offerings can. Under 506(c), all purchasers must be accredited investors and the issuer must take reasonable steps to verify that status. Each exemption has its own requirements set out in the rule.
Are alternative investments risky?
Yes, private fund investments are speculative and illiquid and can lose all of their value. Investors may be unable to withdraw money for long periods, and past performance does not guarantee future results. Reading the offering documents and consulting licensed advisers is an important step.
How do I find a fund manager to learn from?
You can use an independent directory like The Hastings Fund to explore educational resources and types of fund managers, such as funds of funds, secondaries and due diligence providers. The directory does not recommend, endorse or rank any manager. Always do your own research and consult your own licensed advisers.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.