RIA Compliance and Practice Management Blog

Starting an RIA Firm: Choosing Types of Services, Fees, and Clients

Posted by RIA in a Box

Jun 9, 2015 11:00:00 AM

In order to establish a registered investment adviser (RIA) firm, the new firm must first registered with the Securities and Exchange Commission (SEC) or relevant state securities division. In addition to filing the initial registration application, a regulatory review of the required compliance forms, contracts, and miscellaneous documents must generally be completed prior to the RIA firm registration process being complete.

As part of the business planning exercise when forming an RIA firm, some decisions to make include:

  • Types of services which will be provided
  • Types of fees which will be charged
  • Types of clients which will be served

These decisions will help shape and influence which items need to be included in the disclosure documents required for the application process and thereafter to be maintained by the advisory firm.

Scope of Service:

An investment adviser provides their expertise and may provide one particular or multiple forms of advice and management. Below are some common examples of services rendered:

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  • Asset Allocation and Portfolio Management: Conducting an analysis of an investor risk profile and investment goals and selecting the appropriate portfolio mix of securities and financial sector exposure. In establishing the portfolio the adviser oversees ongoing monitoring, review, research and selection of security holdings in the construction of the portfolio of a particular account. One critical component of providing portfolio management is deciding whether the firm will be operating with non-discretionary and/or discretionary authority.
  • Financial planning: The gathering of key criteria related to a client’s risk tolerance, current financial status, assets and assisting the investor develop an in depth plan or strategy to meet their financial goals.
  • Selection of other advisers or third-party money managers: Some firms will decide to outsource or partner with one or a number of 3rd party investment firms in order to assist with client portfolio management. Depending on the particular arrangement, it may still be possible for the RIA firm utilizing a third-party money manager to count client assets as regulatory assets under management (AUM).
  • Newsletter Subscription Service: Entails general investment advice in the form of email content, access to adviser blog posts, and/or newsletters. These services can be offered either as part of a firm's holistic offering or a-la-carte for a charge, generally via a quarterly or annual subscription. The content is typically geared toward general investment considerations or industry/market trends, rather than tailored client specific recommendations.


RIA firms are compensated on a fee basis for their advice, management and planning services and typically charge their fees in accordance with a flat or hourly fee, percentage of assets under advisement or management or for a specific project such as a tailored financial plan. It is very common for an RIA to charge a percentage fee and the percentages may be tiered or structured into break points related to the amount of assets a particular client may have.

Advisory firms also need to decide how the fee will be calculated. Some of the RIA fee calculation options include:

  • Average daily balance
  • Balance at beginning of quarter
  • Balance at end of quarter

We generally believe that average daily balance billing is the most appropriate way to bill advisory clients. However, the proper system needs to be in place in order to correctly and efficiently bill clients in that manner. Advisory fees are generally charged in accordance with a particular time frame or billing cycle. Fee charges typically are prepaid in advance or paid in arrears on a monthly or quarterly billing schedule.

Investment advisory fees should be reasonable and it should be stated if fees are negotiable. In addition, an advisory firm may choose to charge a performance or incentive based fee to certain sophisticated investors that are classified as accredited or qualified and if permissible by a given regulatory jurisdiction.


RIA firms may provide their services to a particular market segment or serve a diverse group of clients. In identifying the client base and the type of clients the firm will target there are several categories to consider. While the majority of RIA firms focus on providing services to ultra high net worth (UHNW) or high net worth (HNW) individuals, some other potential types of clients are:

  • Banks
  • Insurance companies
  • Government entities
  • Charitable organizations
  • Foundations
  • Investment companies
  • Business development companies
  • Pension or 401k plans

A growing number of advisory firms are also looking to offer their portfolio management services to other investment advisory firms as a core or secondary service offering. In addition, an investment adviser may also manage a pooled investment vehicle

Other Criteria to Consider:

Some other pertinent information that will be relative to the application is related to the types of specific investments the RIA firm is advising on or managing. In making securities recommendations or providing investment advice the methods of analysis utilized should be described. Information of individuals providing investment advice including educational background, business experience, outside business activities being conducted and any disciplinary history also will need to be disclosed.

While the above topics are important and will definitely influence the preparation of the filing documents for a new RIA firm, the investment adviser registration process is often complex and requires multiple disclosures related to specific risks associated with investing in securities and use of particular methods to be properly disclosed. As RIA compliance consultants we are very familiar with the many other details, paperwork requirements and intricacies of navigating the RIA regulatory licensure process and would be happy to lend additional guidance towards establishing your own RIA firm.

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Topics: RIA Operations, RIA Compliance

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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