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How to Start a Registered Investment Advisor (RIA) Firm

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Starting a registered investment advisor (RIA) firm could be a logical next step in your career if you’re ready to leave your current company behind and strike out on your own. Working as an independent RIA can allow for greater flexibility while putting you in control of your growth trajectory. That being said, it’s not an easy or overnight process. Understanding what’s involved in how to start a RIA firm can help you to decide if it’s the right move professionally.

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How to Start a RIA Firm Step by Step

Starting an RIA firm is a multi-step process that can take several months to complete. Planning ahead ensures that you’re working toward your goal of opening your own firm on a realistic timeline and that you’re not skipping any vital tasks.

With that in mind, here are eight common steps to start an RIA firm:

Step 1: Review your employment agreement

Starting an RIA firm with zero clients can put you at a significant disadvantage. You might assume that you can simply take your existing client list with you when you launch your own company, but your current employer might have some checks in place to prevent that. For instance, your employment agreement may have non-solicitation or non-compete clauses.

It’s important to understand what you can and cannot do when terminating employment. Otherwise, you may find yourself facing legal action from your soon-to-be former employer.

Step 2: Evaluate your financials

Launching an RIA business requires a certain amount of capital as you may need to invest some funds in securing premises for your firm, furnishing those premises, hiring support staff and marketing your new venture. If you’re starting with a reduced or nonexistent client list, you’ll also need to consider how you’ll pay your personal living expenses, along with your business expenses.

You might tap into personal savings or investments to raise the capital you need or consider a small business loan. If you’re weighing a loan to launch your firm, consider how quickly you may begin generating revenue to service the debt.

Step 3: Obtain the necessary certifications

You’ll need to pass the Series 65 exam before launching an RIA firm unless you hold other credentials. For example, the Series 65 exam isn’t required if you have any of these designations:

  • Series 66
  • Series 7
  • Certified Financial Planner (CFP)
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Consultant (ChFC)
  • Chartered Investment Counselor (CIC)
  • Personal Financial Specialist (PFS)

If you have to take the Series 65 exam, it’s wise to prepare for it thoroughly. There are a number of Series 65 prep courses you can take online that allow you to learn at your own pace, on your own time.

Step 4: Establish your firm as a legal business entity

One of the most important steps in how to start a RIA firm is ensuring that you’re operating as a legal business. Specifically, you’ll want to:

  • Choose a business structure (i.e., sole proprietorship, limited liability company, etc.)
  • Establish business bank accounts
  • Get necessary insurance coverage
  • Obtain any required state or local licenses

A business attorney can help you navigate this part of the process if you’re unsure which type of entity to create or what licenses you might need to operate. When considering a business structure, it’s helpful to consider the liability protection afforded and the tax implications of each one.

Step 5: Choose your compensation model

Running your own RIA firm puts you in control of your earnings and it’s important to think about how you plan to generate revenue. You might charge your fees using an asset under management model, an hourly or project-based model or a flat fee.

There’s no right or wrong way to approach it. Ultimately, you have to consider what type of fee structure will work best, based on the range of services you plan to offer and the demographics of the clients you anticipate working with.

Step 6: Register your advisory firm

If you’ve created your RIA firm on paper, the next step is getting registered with the proper federal or state agencies. At the federal level, RIAs must register with the Securities and Exchange Commission (SEC) when assets under management exceed $110 million. If your AUM is below $100 million, then you can register in the state where you plan to do business.

You’ll also need to create an account with the Investment Advisor Registration Depository (IARD), which is managed by FINRA. This allows you to file Form ADV, which is required for registration. This form has two parts and must include the following:

  • List of services provided to clients
  • Compensation model and fee structure
  • Known conflicts of interest
  • Information about you, including your education and credentials

You must also disclose any parties affiliated with your firm and provide details about your business’s code of ethics. Once you submit Form ADV, the SEC will review it and if approved, you can start doing business as an RIA firm.

You may consider hiring a compliance consultant to help with this stage of the process. A compliance consultant can ensure that you’re checking off all the boxes to get your firm properly registered so you can begin working with clients.

Step 7: Choose a custodian and other vendors

A custodian is responsible for holding client assets on behalf of a registered investment advisor. You’ll need to find a reputable custodian to work with, along with other vendors who may be necessary to the operation of your business. When comparing custodians, it’s helpful to review the scope of services offered and the fees they charge.

You’ll also need to weigh your tech stack typically as you choose software and tools to help make running the business easier. Some of the things you might need include customer relationship management (CRM) software, accounting software and performance reporting tools. You may need to spend some time researching different options to find tools that fit your needs and budget.

Step 8: Market your new business

At this stage, you should have the foundation for your new firm established and be ready to start accepting clients. A good marketing strategy can help you spread the word about your business and begin building your visibility in the space.

How you market your business can depend on the type of clients you’re hoping to attract. If you’re focusing on digital marketing, for example, your strategy might include:

Understanding who your ideal clients are and where they tend to spend the most time online can help you to better target your marketing efforts. And while you’re working on establishing your brand, you can use a tool like SmartAsset AMP to begin connecting with clients. SmartAsset AMP matches you with leads that fit your ideal client profile.

Pros and Cons of Starting an RIA Firm

Couple consulting with their financial planner

Is starting your own RIA firm worth it? That’s an important question to ask, as there’s typically a significant investment of time and money required.

In terms of the advantages, becoming an independent RIA can allow you greater freedom over your career. You can decide which type of business model to operate, what kind of clients you want to work with, how you want to set your fees and so on. That may be preferable to working for an established firm where you might feel limited in your ability to serve clients the way that you want.

It’s possible that you could earn significantly more as an independent RIA than you might with an employer as well. The downside, of course, is that you might end up making less if you’re not able to attract and retain the clients you want.

What you have to consider is whether the potential rewards outweigh the risks involved. Talking to other advisors who’ve left their employers to start their own RIA firms can offer some valuable perspective on the advantages and disadvantages and the most important things to know before making the transition.

Bottom Line

SmartAsset: How to Start a Registered Investment Advisor (RIA) Firm

Researching how to start a RIA firm is important as the more you know going in, the easier it may be to combat any obstacles that might come your way. Setting some realistic goals for your first year in business can give you a clear outline of things to work on while keeping you motivated along the way.

Tips for Growing Your Advisory Business

  • SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
  • Using social media can be an effective way to market your business and there are different ways to leverage those channels. Exploring different types of social media content, including blog posts, polls, quizzes and video content, can help you to figure out what kind of posts your ideal clients are likely to respond to.

Photo credit: ©iStock/seb_ra, ©iStock/pixelfit, ©iStock/Drazen Zigic

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