There was a time when financial advisors were reliant on the size of their Rolodex and how close they were to Wall Street to grow their business. However, the advent of technology, more high-net-worth clients seeking out personalized services, and increased transparency from a fiduciary have led to a new class of wealth management professionals called Registered Investment Advisors (RIAs).

Whether you’re thinking about becoming an RIA or just curious about what it takes to start your own investment company, read on for a brief overview. Or, if you need further assistance, contact our team at Bridgemark Strategies for more information.

What Is an RIA?

A Registered Investment Advisor, commonly referred to as an RIA, is a financial advisory firm that manages a client’s assets for a fee. RIAs are fiduciaries for their clients, looking out for the investors’ best interests. Generally, starting your own RIA is not right for most people that have less than $1b aum. However, joining an RIA can be right for anyone of any size–but selecting the right one is crucial.

4 Advantages of Becoming an RIA

1. Compliance Flexibility

Becoming an RIA is appealing for many reasons, one such reason is the perceived increase in compliance flexibility.  While there may be some clear advantages, one always has to balance the advantages vs the risks.

Many advisors choose to drop their Series 7 license and no longer be affiliated with FINRA.  This doesn’t absolve them of Compliance protocols altogether as every RIA is still surveilled directly by either their home state or the SEC.  In either case, be prepared to still be audited.

2. Flexibility in Operational Infrastructure

Financial advisors under broker-dealers often have limits over the investment products sold, the technology used, and the fees charged. As an RIA, you can eliminate the bureaucratic bottlenecks, select products, technology, and portfolio construction and fees to meet whatever goals work best for your clients.

3. Favorable Pay Structure

You can determine how much revenue your firm can keep, up to 100%. However, when compared to broker-dealer payouts which can have payouts from 40% to above 90%, those RIAs that have achieved scale will offer a greater net payout

As an RIA, you can also boost your income by growing your firm’s equity with a profitable sale or merger down the road. This sale is referred to as enterprise value which can be several multiples of trailing 12 – month revenue.

4. Better Client Relationships

RIAs must act as fiduciaries, looking out for the client’s best interests. Flexibility in the structure of the investment products you provide means personalized and tailored services for your clients.

With flexible products, you can enjoy more satisfying outcomes and better, longer-term relationships with investors.

What Are the Potential Downsides?

The primary disadvantage of establishing your own RIA is the cost, both upfront to establish it and ongoing costs to maintain it. Other downsides when considering establishing an RIA include the time it may take to run the RIA which is different from the time you spend managing your clients. Finally, the remaining downside advisors should consider is the additional risk they may be taking when establishing an RIA.

How to Get Started

RIAs can be individuals or companies that provide investment advice to clients, but they need to adhere to their fiduciary duty at all times. Here’s a step-by-step guide:

1. Pick a Business Model

You need to decide how you wish to start your firm, either registering a new RIA or joining an existing RIA — you could also plan a merger. Define how you want to structure your products and payment models.

2. Register with the SEC or the Respective States

Independent advisors with more than $100 million under management interested in starting their own RIA will need to register with the SEC. If assets are less than $100 million then the RIA is registered with their home state. Additionally, if you are creating your own RIA, you will need to develop your ADV and CRS which are filed with the appropriate regulator and are available to the public.

Learn More About the Benefits & Drawbacks

Becoming an RIA is a big decision. There are many pros to choosing this career path, including working for yourself, attracting clients more easily, and enjoying greater control over your day-to-day work life. But there are also drawbacks associated with being an RIA, such as the high startup costs or additional risks. You should carefully weigh the pros and cons to make the best decision for yourself and your future career prospects.

Contact Bridgemark Strategies today for assistance in evaluating the regulatory framework and choosing the right RIA custodian or partner for your firm. Request your complimentary consultation today!