RIA Compliance and Practice Management Blog

The Benefits and Considerations When Starting an RIA Firm

Posted by RIA in a Box

Aug 21, 2020 12:00:46 PM

the benefits of starting an independent RIA firmAs the financial services industry continues to grow, we are seeing increased interest in advisors exploring the path to start their own independent registered investment adviser ("RIA") firm. As the industry continues to shift more towards a fiduciary model, it's possible this trend may continue to accelerate. Now more than ever, advisors are contemplating ways in which they can transition from an independent broker dealer or wirehouse to establish an RIA firm. The many benefits of creating an independent RIA firm continue to be the driving force behind it being the fastest growing financial advisor channel in the industry. 

Tips on Starting an RIA Firm

Some of benefits to starting an RIA firm:

  • Alignment with Your Client: Quite simply, putting your clients' best interests first is a better business. As a fiduciary, you have a fundamental, ongoing responsibility to act in your clients’ best interests whereas a traditional broker only is required to recommend an investment that is suitable for a client at a given moment. Suitable does not necessarily suggest that it’s the best investment for the client. Thus, as clients continue to become better educated on the significant differences between the fiduciary and traditional brokerage model, it’s no surprise that many clients and advisors have a strong preference towards the RIA model.
  • Ecosystem to Support RIAs: The ecosystem supporting independent RIAs is incredibly well established. Technology that was once only available to large firms has been scaled down to help small firms run their day to day activities. To start, companies like ours help you streamline the initial registration process. Once registered, there are a number of custodians with dedicated RIA practices that provide more and more services to an RIA at a tremendous value. Additionally, there are hundreds of other vendors providing RIA specific websites, portfolio management and reporting, financial planning, customer relationship management ("CRM") tools, and other value-add services. These groups cater to all segments of the market allowing large and even the smallest RIAs to run a more efficient, profitable business. With all these resources, you can replicate the support services of a larger institution, but enjoy the financial and personal freedom of your own independent organization.
  • Control of Your Own Destiny: Until you have your own RIA firm and are able to make your own decisions, you may not experience the benefits of true independence. While elements of operating your own business are certainly intimidating, you are far from alone as there are over 30,000 investment advisory firms. Besides the monetary benefits, operating you own business and being fully independent brings immense psychological rewards. The RIA segment is the new frontier of the investment management industry and it offers a tremendous opportunity to take control of your own destiny. In an era when larger financial institutions are often losing public trust and shrinking in size, this destiny matters. Starting your own RIA enables you to make the best decisions for your clients and your lifestyle resulting in true independence.

While there are many benefits to starting your own RIA firm, it still might seem like a daunting task. However, it is much easier than ever to start the process. As the industry has evolved, we have seen an array of technology solutions and tools play a vital role in simplifying many tasks surrounding advisors. With the proper guidance the process of starting your own RIA can be a smooth transition from beginning to end. Some early steps to take to ensure that you are properly prepared to start your RIA firm include:

  1. Develop your firm’s Business Plan: Identify your firm's niche, value proposition, target market, and key spheres of influence
  2. Choose your firm’s business entity type (limited liability corporation (LLC), S-Corporation (S-Corp), etc.) and business name
  3. Assess your regulatory assets under management (AUM) and the states in which your firm will be conducting business
  4. Determine if you will need to register your firm with the Securities and Exchange Commission (SEC) or relevant state securities division
  5. Engage a compliance expert to assist with the intricacies of creating the required documents and navigating the registration process
  6. Take the Series 65 examination if necessary
  7. Select the custodian(s) that will best serve your firm’s clients
  8. Implement technology systems including CRM, reporting, billing, archiving, etc.
  9. Create initial marketing materials including a logo, website, business cards, letterhead, etc.
  10. Obtain business, errors and omissions, and cybersecurity insurance
  11. Establish a compliance program including a policies and procedures manual, a Code of Ethics, and the proper books and records

As RIA compliance consultants, we are happy to further discuss your plans for starting your own firm. We continue to see the number of new investment advisory firms started each year on the rise. At first glance, the RIA registration process may seem a bit daunting, but we believe the long term rewards well justify the upfront work.   

How an IBD Rep Can Start an RIA Firm: A Step by Step Guide


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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