How to start an RIA: A Guide for Financial Advisors – Part 1

How to start an RIA?  A question a lot of advisors are asking.  What would it mean to you if you left your present financial firm and went out on your own? Would this mean more time to spend with your family? Achieving a better work-life balance? Getting to be picky about the clients you choose to work with?  Keeping what you earn?  Not having to worry about sales quotas anymore?

While becoming a fully independent Financial Advisor can be an intimidating feat, the benefits of going indy are extensive.  Use our guide on how to start an RIA to learn more.

As an advisor who went independent in December of 2021, I learned a ton and am happy to share it with you with the goal of pointing you in the right direction.

Looking back, was going independent after spending almost 16 years at a large insurance BD the right move?  100% yes!  Was it easy?  Nope!  But I am so glad I made the move given that our industry & profession is in the midst of a massive shift to leading with advice, transparency, lower fees, and independence.  Before we talk about how to start an RIA let’s define what an RIA is.

What is an RIA?

A Registered Investment Advisor (RIA) is a firm (business entity) with at least one Investment Advisor Representative (IAR) that advises clients on investments and manages their financial portfolios, and is registered with the US Securities and Exchange Commission (SEC) or a State securities authority.

To become an RIA, you must meet certain legal and professional qualifications, such as passing the Series 65 exam, completing Form ADV, and registering with the SEC.

Starting an RIA means going fully independent. This topic is broadly covered in the media but getting press and actually doing it are worlds apart.

Being a fully independent Financial Advisor is a serious commitment and an in-depth process.

In this article, we will cover what you should consider before taking action and the points that need addressing while you are on your path to starting an RIA – if it’s the journey you choose.

Step 1: Narrow down your objective

Being a completely independent RIA is going to take some serious effort on your part. It’s not an easy thing to do, but is much easier than it used to be.

When attempting any major shift in life, it’s important to have a driving force to keep you motivated, particularly when things become challenging.

The first step on how to start an RIA firm is to identify your ‘why’. Ask yourself these questions:

  •  Why do you want to become a fully independent Financial Advisor?
  •  What will running your own firm mean to you?
  • How would your life change if you started an RIA?
  • Why is now the time to start your RIA?
  • Will the grass be greener on the other side?

Knowing what you want and, more importantly, why you want it assists in keeping you motivated and focused when the going gets tough.

I often say going independent is a transformative, planned event, much like a wedding, for example. It will fundamentally change your life. Knowing your ‘why’ is crucial to your journey to independence.

Step 2: Review your existing contracts and calculate risk

Now that you have identified your objective, the next thing you need to do is review the contracts you are currently tied into.

Non-Compete and Non-Solicit Contracts when starting your own RIA

Do you have a Non-Compete and Non-Solicit contract in place? What are the terms of these contracts? Have they been enforced on other Advisors who have left in the past?

These contracts differ from one situation to the next and even from one state to the next. There are many grey areas here, so if you aren’t especially sure about the contracts you’re bound to, I highly suggest that you consider speaking to an attorney who is familiar these types of contracts and RIA transitions.

Spousal counsel

Of course, if you have a spouse, you will want to make sure you have an extensive conversation about leaving your present employer, what it means, and the risks that are involved.

They will be one of your biggest supporters and deserve to know everything about the transition you’re considering.  Without their support it will be a lot harder to make the move.

A calculated risk

Leaving your existing firm could be a significant risk on your part. This means that everything you do must be calculated and intentional.

Ensure you weigh up the pros and cons before executing your move. If you are careful enough in your planning and execution, you will make your journey to independence as smooth as possible. Make sure you spend time identifying the risk and evaluating if it is worth the reward.

This isn’t a spur of the moment idea, it’s something that needs to be carefully thought out and planned.  I thought about my own transition to RIA for almost a year and then spent another 4 months getting everything in order to make it happen.

Step 3: What and who’s coming with you if you start your own RIA?

This step would be different for each Advisor, depending on the kind of environment you currently practice in and the contracts you’re bound to. What information, and who can come with you when you make the change and become independent? What data are you allowed to take with you?

There’s no need to break any rules here. Your firm will make it clear as to what (and who) you can and can’t take with you. It’s best to act ethically here, you don’t want to start your new firm off on the wrong foot.  At the same time you will realize there are some gray areas that you will have to work through with the guidance of those helping you on your transition.

If you are already acting as a fiduciary for your clients, it’s your responsibility to let them know if there is going to be a material change to their account. Leaving your firm is a material change, and this is certainly a conversation you would want to have with your clients. You must be clear that there is no obligation for these clients to follow you.  And as I mentioned before, discuss this with legal counsel before initiating and having client conversations.

It’s worth noting that these conversations take months. If you’re looking to make the move to independence within a month, you may find yourself running into issues with your current clients and firm.

Step 4: Branding and defining your niche for your RIA

Now that you are making headway toward becoming a fully independent Financial Advisor, you can start to think about the kind of firm you want to build. This is where you get to be creative and apply your long-term vision.

You will need to determine the name of your firm. This will drive everything from your website URL to your marketing initiatives further down the line.

Next, you’ll need to design a logo and select a color scheme. These are two important aspects as they will represent your firm for years to come. If you’re not especially skilled in design, it might be worth investing in a designer or creative agency that can develop these things for you.

Something that will and should drive your branding is your definition of your ideal client. In a perfect world, what does your ideal client look like? Who do you want to cater to? What is unique about their demographics?

By defining your ideal client, you’re finding your niche. And this is imperative when it comes to your branding as you’ll want to gear everything towards them.

All of this can seem overwhelming which is why I created my Conneqtor financial advisor training & course to show advisors exactly how to do all of it.

These are also things you can do before you make a move to independence.  I had already created my brand, Intrepid Wealth Partners, years before starting my own RIA so I was able to skip all of this as part of my transition, something to keep in mind depending on your timeline.

Step 5: Firm entity to-do list

When you’re getting ready to register and form your RIA, there are some important items that you need to remember to do as you go along, such as:

  • Filing entity paperwork, like an LLC or S-Corp.
  • Consider the rules and regulations of the state you are filing in.
  • EIN for the entity.
  • Determine if your RIA will be State or SEC-registered.
  • Notice filing in each state you are registered in.
  • Your U4 update so you can switch firms – the timing of this is delicate!
  • Business bank account and credit card.
  • Setting up your payroll service.
  • Your retirement plan, and Health and E&O Insurance.

This is not by any means an exhaustive list on how to start an RIA, but what I’m sure you can see here is that there are a lot of moving parts in play.  Some of these things you can do on your own.  Some you can ask your CPA and/or attorney to help with, and some can even be done by firms like FIN Compliance (I use them).

In the second part of the how to start an RIA guide, we will look at further moving parts such as compliance, technology, and timelines. I will also share some of my journey toward becoming an RIA and what you can learn from my mistakes.

In the meantime, you can watch my webinar on Redtail Technology’s YouTube channel, where I speak about my own experience in start an RIA.

If you would like more advice and guidance on how to start an RIA, visit my website to learn about how Conneqtor can help you. You can also download my free eBook to find out how you can take your own practice into the 21st century.

Sending positive vibes your way,

Derek Notman

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