How to Start an RIA Firm: Complete Checklist

Starting your own RIA firm can feel overwhelming.

Many people in the financial industry want to open an RIA but don't know where to start. This checklist will guide you through each step, from reviewing your employment agreement to registering with the SEC.

Review Your Employment Agreement

Check your current work contract before you start an RIA firm. This step is important to avoid legal issues with your current employer. Some contracts have rules against starting a new business while working.

You might need permission from them to open an RIA. Make sure there are no conflicts that could stop you from using client contacts or industry information for your own firm.

Evaluate Your Financials

Evaluating your financials is a critical step in starting an RIA firm. You will need to look at both personal and business finances closely. Make sure you have enough money saved up to cover living expenses for the first few months since it can take some time before your new firm starts generating revenue.

Estimate the startup costs, including registration fees with the Financial Industry Regulatory Authority, buying financial planning software, and setting up a web domain. Don't forget ongoing expenses like rent for office space, paying any staff you hire, and investing in marketing.

It's also wise to open a separate business banking account to keep track of all business-related transactions easily. Consider potential income from advisory services offered and how you will price these services to be competitive yet sustainable.

Planning for health insurance, liability protection through insurance policies, and saving for taxes are crucial too. This financial groundwork ensures that your registered investment advisory firm is positioned well from the start, allowing you focus on building client relationships and providing excellent investment advice without worrying about cash flow issues.

Obtain Necessary Certifications

Starting your own RIA firm requires the right certifications. These make sure you meet the standards set by regulatory bodies.

1. Get certified as a Certified Financial Planner (CFP). This shows you have a strong understanding of financial planning.

2. Earn a Chartered Financial Analyst (CFA) designation if you focus on investment management and analysis.

3. Become an Investment Adviser Representative (IAR) by passing the Series 65 exam, or hold the CFP, CFA, or other accepted designations to waive this requirement.

4. Check with the Securities and Exchange Commission (SEC) and state regulations to see if additional certifications are needed for the services you plan to offer.

5. Consider obtaining insurance licenses if your RIA firm will also provide insurance advice or products to clients.

6. Stay updated with continuing education credits to maintain your certifications and compliance with federal securities laws.

7. Join professional organizations related to your services, such as the Financial Planning Association (FPA), which can provide resources and support for your practice.

Each step ensures you are well-prepared and legally compliant to open your RIA firm and serve your clients effectively.

Establish Your Firm as a Legal Business Entity

• Choose a suitable legal structure, such as a limited liability company (LLC), to protect personal assets from business liabilities.

• Register your firm with the state by filing necessary documents and paying required fees.

• Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) for tax purposes.

• Create an operating agreement that outlines the ownership and operating procedures of your firm.

• Consider seeking legal counsel to ensure compliance with regulations and to address any specific needs of your business entity.

Register Your Advisory Firm

• Choose a business entity type such as a sole proprietorship, partnership, limited liability company (LLC), or corporation based on your business model and tax implications.

• Review the registration process for becoming a Registered Investment Advisor (RIA) with the SEC or state securities authorities to ensure compliance with regulatory requirements.

• File Form ADV electronically through the Investment Adviser Registration Depository (IARD) system to register your advisory firm and disclose essential information about your business, fee structure, and client assets.

• Understand the legal and compliance considerations associated with the registration exemption, if applicable, as an independent RIA or when forming a new firm.

• Establish your firm's code of ethics and compliance policies to ensure adherence to industry regulations and protect client interests at all times.

Select a Custodian and Vendors

To select a custodian and vendors for your RIA firm, follow these steps:

• Evaluate the level of support and services offered by potential custodians

• Consider the fee structure of each custodian and how it aligns with your business expenses

• Review the technology and tools provided by the custodian for account administration and performance reporting

• Ensure that the custodian complies with SEC registration requirements

• Research potential vendors for web hosting service, compliance consulting, and social media archiving

• Seek recommendations from peers in the industry regarding their experiences with different custodians and vendors

Build Your Technology Stack

• Select a customer relationship management (CRM) system designed for RIA firms to efficiently track client interactions and manage leads.

• Choose portfolio management software that aligns with your firm's investment strategy, allowing for seamless portfolio monitoring, rebalancing, and reporting.

• Implement a strong cybersecurity system to safeguard client data and comply with regulatory requirements, such as encryption tools, secure email, and multi-factor authentication.

• Integrate financial planning software to provide comprehensive financial analysis and personalized insights for clients' long-term goals.

• Utilize document management software to securely store and organize sensitive client documents while ensuring accessibility for authorized staff members.

• Select a communication platform that facilitates secure client communication through encrypted messaging or video conferencing options.

Create a Marketing and Client Acquisition Plan

After establishing a robust technology stack, the next crucial step involves devising a marketing and client acquisition plan for your RIA firm. A well-crafted strategy will facilitate reaching prospective clients and generating revenue for your business.

Begin by identifying your target audience and comprehending their needs and preferences, as this information will form the foundation of your marketing efforts. Employ digital marketing tools such as search engine optimization (SEO), social media marketing, and content creation to enhance the online visibility of your RIA firm.

Furthermore, contemplate participating in industry events, conferences, or seminars to network with potential clients face-to-face.

Moreover, it's vital to customize your message to address the evolving financial needs of clients. Instituting a client referral program can also be highly effective in acquiring new clients through recommendations from satisfied existing clients.

Keep in mind that adhering to regulatory requirements during all marketing activities is crucial for the success of an RIA firm.

Conclusion

Starting an RIA firm can be a significant step, but with the right checklist in place, it becomes achievable. Be sure to review your employment agreement and evaluate your financials thoroughly before moving forward.

Acquiring necessary certifications, establishing your firm as a legal business entity, and registering your advisory firm are crucial tasks in this process.

Moreover, selecting a custodian and vendors, along with building a strong technology stack, is essential for success. Develop a marketing and client acquisition plan to generate revenue effectively for your RIA firm.

Having these steps completed, you'll be well on your way to realizing your dream of owning an RIA firm.

FAQs

1. What are the first steps to open an RIA firm?

To open a Registered Investment Advisor (RIA) firm, you need to decide on your business structure and get your firm registered as a legal entity.

2. How can I register my RIA Firm?

For RIA firm registrations, you may need to consult with a compliance company or hire a compliance consultant who specializes in financial advisor practices like yours.

3. As a business owner of an RIA, how can I generate revenue?

As an RIA business owner, you can generate revenue by offering investment advice services to clients. You may also earn income through broker-dealer arrangements.

4. What is the role of technology in managing an RIA Firm?

A tech stack is crucial for practice management in any modern-day business including RIAs. It helps streamline operations and enhance client service delivery.

5. Why do I need insurance when running an RIA Firm?

Insurance protects your business from potential liabilities that could arise from handling client investments or other operational risks associated with running your own financial advisory.