RIA Compliance and Practice Management Blog

How to Select Technology For A New RIA Firm: Step 2 (Setting a Budget)

Posted by RIA in a Box

Mar 12, 2015 4:00:00 PM

When helping an entrepreneur to start a new registered investment adviser (RIA) firm, we are often asked what technology is needed for a new advisory firm. We like to address this question with a 5 step process: 1) review a firm's specific business operations to determine particular needs, 2) establish an initial monthly technology budget, 3) determine the firm's desire to "build" vs. "buy" 4) decide on general small business applications and other infrastructure, and 5) select specific RIA technology and software solutions.

Following up on last week's blog post on step 1 of the process on how an RIA firm can evaluate its business model to determine its overall technology needs, we now take a deeper look into the second step of the RIA technology evaluation process: setting a monthly technology budget. In general, we believe a newly formed investment advisory firm should divide this exercise into two parts: 1) per firm costs and 2) per user or per advisor costs.

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Before we dive a bit more into those two categories, however, we need to make two key assumptions. The first is that the firm will utilize cloud-based technology. Today, we see very few firms, regardless of size, not adopting web-based software and document storage. The vast majority of technology experts believe the cloud is not only more economically attractive to small businesses, but generally also more secure as most firms do not have the knowledge and resources to manage an on-site server and infrastructure. Also, by selecting a cloud-based technology, advisory firms can generally greatly reduce the upfront costs of starting a new RIA firm due to the fact that there are less upfront capital investments into physical infrastructure.

Second, we are making the assumption that this is new, state-registered RIA firm with $100 million or less in assets under management (AUM). In our experience as RIA technology consultants, we do often see the technology needs of a firm begin to become more complex and costly once a firm reaches around $100 million in AUM. 

Per Firm Costs

  • General Small Business Needs
    1. Office internet: $50-$150/month
    2. Website hosting: $25-$75/month
    3. Accounting software: $20/month
  • RIA Industry-Specific Needs
    1. Portfolio Management / Reporting (PMR) software: $200-$2,000/month
    2. Automated billing software: $50-500/month
    3. Client Portal: $50-200/month

Using the components above, we find that the average per firm-based technology costs for state-registered RIA firms are as follows:

RIA Technology Costs Per Firm

In general, we see most firms spending around $400-800 per month for the bundle of components listed above. However, RIA firms with these characteristics will often experience higher monthly costs:

  • Firms with over $25 million in AUM
  • Firms that offer complex performance reporting to clients
  • Firms that cater to the ultra-high net worth (UHNW) client segment
  • Firms that bill clients on a monthly rather than quarterly basis
  • Firms extensively utilizing automated outside account aggregation

It's also important to note that the costs of PMR and automated billing software along with a client portal are often tied to AUM, number of clients, number of accounts, or a combination of any of those three factors. Thus, as the firm grows, the firm needs to budget for additional costs related to those systems as they are not true fixed, per-firm costs.

Per User/Advisor Costs

One important distinction to highlight when looking at per user/advisor costs is that some systems will treat all users the same, whether the user is an investment adviser representative (an advisor) or a client service representative. On the other hand, some of RIA-industry specific technology solutions will only charge per advisor and not charge extra for client service representatives. 

  • General Small Business Needs
    1. Voice Over IP (VoIP) Phone system: $50/user/month
    2. Email hosting: $5/user/month
    3. Desktop software: $10/user/month
    4. Document storage: $15/user/month
    5. Customer relationship management (CRM) software: $30-$150/user/month
    6. Email / social media / website archiving: $75/user/month
  • RIA Industry-Specific Needs
    1. Financial planning software: $100-300/advisor/month

Using the typical components above, we find that the average monthly per user or per advisor-based technology costs for state-registered RIA firms are as follows:

 RIA Technology Costs Per Advisor

The low vs. high cost ranges for each staffing scenario above are primarily driven by whether an advisory firm offers financial planning services and decided to provide financial planning software to its advisors.

The three primary factors that can drive the costs above the estimates listed in the above table are:

  • Utilizing more sophisticated CRM software
  • Choosing more advanced financial planning software
  • Firms with more than 5 advisors and client service representatives

Calculating the Total Monthly Technology Budget for Your RIA Firm

As discussed above, an RIA firm's monthly technology costs are generally driven by1) per-firm and 2) per-user/advisor costs. Combined, they equate to a firm's total monthly technology cost. There will be some fixed per firm costs that are generally unavoidable even for the smallest of investment advisory firms. However, as firms grow over time, key drivers of increasing monthly technology expense will be the addition of new staff members, growth in assets under management, and the opening of new offices.

Of course, there will be a wide variance in monthly technology costs for firms depending on a variety of factors. However, we generally find that a solo-advisor RIA firm (1 advisor, 0 client service representatives) should budget around $650-$1,000 in total per month on technology. Depending on circumstances, each additional staff member will cost around $300-$800 per month depending on whether the staff member is an advisor or client service representative and other factors such as the number of clients, the total assets that the advisor is managing, and whether the advisor is located in a new remote office.


In our next blog post, we will further discuss the "build" vs. "buy" decision which is step 3 when it comes to choosing RIA technology focusing on the benefits and drawbacks of each approach and which approach makes sense for different types of investment advisory firms. In steps 4 and 5, we will discuss specific vendors and solutions to consider for a firm's general small business needs as well as investment adviser industry-specific solutions for each of the key technology categories.

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Topics: RIA Operations, RIA Compliance, RIA Technology

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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