The Definitive Timeline for Launching a New RIA Firm

Thinking about independence for your advisory practice? If you’re wondering if it’s time to start a new RIA, you aren’t alone. 

Now more than ever, advisors are ready to break from long-standing relationships with large financial institutions so they can form their own independent businesses and give their clients the kind of personal service and trusted advice that they’ve always wanted, without compromise. 

Today, about one-fifth of all advisors in the United States are associated with an independent RIA and the numbers are growing.

In 2018, RIAs had a net gain of 3,200 advisors while wirehouses lost a net of 1,300 reps. And there’s no sign of the trend slowing down any time soon; if anything, a desire for independence is only increasing.

In a recent TD Ameritrade report taken in 2019, 44% of potential breakaway brokers said that they wanted to make their move to independence within one year of the survey.

A similar survey completed in early 2020 showed that the appetite for independence had gone up even more, with 55% of potential breakaways indicating that they were ready to start their own firms in the very near future.

As wealth management shifted from a largely in-person industry to remote work along with most other types of businesses, the opportunity to claim independence has never been greater. 

If you’ve been working from home, you’ve gotten a taste of what freedom feels like, and there’s no going back.

If you’re ready to experience the joys and freedom of establishing an independent RIA firm, it’s critical that you understand what you need to do to prepare yourself, your business, and most importantly your clients for the move.

In today’s blog, we’ll take you through an overview of all the major considerations when starting an RIA firm, but first let’s quickly talk about why so many advisors are finding they prefer the RIA life to the wirehouse.

Related: Click here to download our RIA Breakaway Checklist

8 Reasons the Independent Business Model is the Best Choice for Financial Advisors

1. Grow as Much as You Want

Being in charge of your business means being in charge of your life. The decisions you make about how to grow are yours alone to make. If you want to put all your energy to 10X your growth, then you can satisfy the passion and drive you have to succeed. 

On the other hand, if you’d rather scale back and operate with a lifestyle business model, independence gives you the chance to do so without sales quotas and other benchmarks hanging over your head.

2. Business Control

When you run your own RIA firm, you’re in control of what happens in your business.  For many brokers, there isn’t much more that needs to be said about why starting an RIA is the best choice for their professional career. From where you work, to when you work, to who you hire—it’s all up to you.

3. Instill Your Own Culture

A strong firm culture is a major consideration for why breakaway brokers choose to create an independent firm. When you’re part of a large broker-dealer or insurance company, it can be difficult to establish a different culture within your group that stands apart from the overall corporate entity. When you’re independent, that all changes.

4. Provide Conflict-free Advice

One of the main drivers for becoming an RIA is the ability to provide conflict-free advice. While many brokers do choose to register as a hybrid RIA and continue to offer insurance policies, others believe it is in their best interest to establish a fee-only business model and be paid only on advice and not commission. 

Whatever choice you make, independence gives you an opportunity to offer all your services to clients in service to their needs only, instead of the sales quota decided on by a large organization.

5. Compensation

We know that money isn’t the primary factor in your life, but one perk of establishing an independent RIA is being able to set your own compensation and keep more of the revenue you earn. Payouts vary greatly among wirehouses, but it’s nearly always true that you can raise your salary when you make the move to break away.

6. Market Your Firm, Your Way

When you’re under a larger brand, your group has restricted ability to market yourself apart from the parent organization. RIA firms have a greater ability to market themselves and communicate with prospective clients than employee advisors. Whether you want to use social media more actively or publish regularly on your blog, you have an easier path to do so when you’re an RIA. New SEC advertising rules are also making it easier for independent advisors to promote the solutions they offer for investors.

7. Choose Your Technology

Gone are the days of only being able to use what’s in the “approved” list of technology vendors. As an RIA, you make technology choices based on what you like best and what gives you the best chance to service clients well. Without restrictions on what’s approved and what’s not, you can select from best-in-class solutions and integrate them into a technology stack that works the way you’ve always wanted to work.

8. Create the Legacy You Want

The reasons for establishing an RIA don’t end with the day-to-day work and life improvements. As a small business owner, you’ll have a chance to create a legacy and a company brand that outlasts your contributions. As an independent advisor you’ll be able to hand select the next-generation of your firm and turn your business into a cornerstone in your community with a reach that goes beyond the name of a parent organization whose values you might or might not agree with. 

7 Legal Considerations When Starting an RIA Firm

When you’re convinced of the benefits of running your own RIA, the next step is to understand the steps to take to establish your new business. 

Importantly, you want to keep your new business venture, and the preparation you do for it, a closely guarded secret. If your employer catches wind that you’re leaving and setting up an RIA, they may terminate you before you have a chance to get all your ducks in a row. (That’s why we created Fusion BlackOps, but that’s a story we’ll cover another day.)

While there are many steps to go through as you set up a new business entity, we’ll do a quick overview of the top seven considerations you want to be aware of as you start your journey (for an in-depth review, head over to this article).

Related: Click here to download our Fusion Black Ops fact sheet and learn more about how we can safely (and quickly) take you from point A to RIA. 

1. Choose a business structure

Will your RIA be an LLC, S Corp, or something else? This is the first decision you’ll need to make as you set up a new business entity and register with your state. Start with the very basics of business; financial industry-specific issues can come after this one.

2. Trademark your company’s name

Protect your intellectual property and trademark your company name. Trademarking is easier if you put effort into creating a name that’s memorable and unique. It’s important to be seen as an establishment of trust in financial services, but don’t be afraid to go different here.

3. Get the necessary licenses

You can’t be an RIA without obtaining your Series 65 license (or equivalent designation), which is administered by FINRA.

4. Register with the proper authorities

You are required to be registered with either the SEC or the state, depending on several factors. In general (with a few exceptions), if your AUM exceeds $100 million, then you must register with the SEC. If it’s less, you must register with the state. 

5. Make sure you have the right forms

There are a lot of forms to complete and file when you’re an RIA. You will have to complete Form ADV when you register with the SEC (parts 1-3) or your state’s securities authorities (parts 1 and 2—part 3 is only required for SEC-registered firms). 

6. Purchase business insurance

When starting a new business, there are a number of insurance policies you can carry. It’s most often always necessary to have general liability insurance, and you may decide to add additional policies like errors and omissions (E&O) or cybersecurity insurance.

7. Pre-soliciting clients without getting sued

There are rules in place (known as Broker Protocol)  that try to limit the ability for breakaway brokers to bring clients with them when establishing an RIA. As a general rule of thumb, you can’t make disparaging comments about the firm you’re leaving and you may be restricted in what type of client information you can keep—and what you can or can’t say about your new venture. 

This is when discretion is most important; you’ll want experienced advisors on your side to help you navigate the tricky legal situations that can catch your firm off-guard when trying to bring as many of your existing clients as possible to your new firm.

There are plenty of legal filings to get through when creating an RIA, but there’s another process that many breakaway brokers find fuzzy and cumbersome: making a clean break with their existing employer.

How to Make a Clean Break from the Wirehouse 

Most firms will operate under the guidance of Broker Protocol to guide what you can and can’t take with you when leaving your existing employer.

Specifically, you can retain only five pieces of client information:

• Name
• Address
• Email
• Phone Number
• Account titles

Try to take any additional information with you and you could land your firm in some hot water—such as being sued by your former employer. 

Wrapped in the process of making a clean break is knowing when to tell your current employer about your plans to leave. In short, you don’t want to let them in on your new launch until you’re 100% ready to get started with your new firm. 

When you are ready to resign, you should do it in a short written letter and make it effective immediately. Even if you don’t offer an immediate effective date, it’s likely your current employer will make that part a reality anyway.

After you’ve resigned, you can finally tell clients about the move and ask them to bring their accounts with you (depending on the terms of your non-compete and non-solicit agreements). 

Keep in mind, you do have to be officially employed at your new RIA in order to make contact with your (now former) clients and solicit them to join you by moving their accounts to your new business, which is why it’s so critical that you keep your move a secret up until the moment that you’re ready to launch.

Choosing Trusted Partners for Your New Firm

As you make plans to start your new RIA, you won’t be going through it alone. In fact, there are many considerations to make about who to partner with to help your new firm succeed. 

The first decision most advisors make is which custodian they’ll use to safeguard client accounts. The largest RIA custodian is Schwab (who acquired the second-largest custodian, TD Ameritrade, in 2020) but there are many options, including Fidelity, Pershing and smaller boutique custodians as well.

Other than a custodian, your firm will finally be able to make its own decisions on the technology partners used to create a superior client experience and give employees a way to work efficiently together. 

Every firm is different, but the most common types of technology solutions for advisors include:

• Portfolio management and client reporting
• Financial planning
• Risk tolerance
• CRM
• Marketing automation
• Website and hosting
• Portfolio analytics 
• Trading and rebalancing 

It takes time and effort to vet new technology partners. In tandem, new RIA firms need to be aware of the IT requirements that will help guide decisions on technology vendors. 

The IT Requirements to Know When You Start a New RIA

The SEC will expect your RIA firm to maintain cybersecurity policies and do what’s reasonable to protect the information of your clients against hacking. 

Importantly, cybersecurity isn’t just software. You’ll need to equip your team for success with hardware configurations like phones and computers that allow them to access systems from anywhere—a critical step in today’s remote work environment. 

Over time, RIA firms must conduct cybersecurity training for employees to keep them up to date on the latest threats, and a firm’s information security policy should be kept up to date with the latest adjustments and regulatory guidance as well. 

Navigating the Journey to Advisor Independence

If you’re seriously considering breaking away to start a new RIA, you’ve probably had a great deal of success as a financial advisor up to this point. Maybe your group even manages over $1 billion in assets—a terrific achievement.

As a new RIA, however, you’re entering a new corner of the wealth management industry that will present its own unique challenges and obstacles which may be new to you. 

The final consideration you should make when getting ready to embark on creating a new RIA is to ask yourself if you can do it all yourself or if you need to partner with an experienced guide to help you arrive safely at your destination. 

Your clients trust you to be their trusted advisor for financial matters in their lives. Similarly, working with a trusted advisor of your own throughout the breakaway process can help you in a number of ways.

A breakaway consultant can help you:

1. Avoid common mistakes like missing a filing or creating a necessary internal document
2. Slim down your list options and guide your attention to the best choices for what you want to accomplish
3. Help you make quick decisions and avoid getting bogged down in the details
4. Manage your timeline so creating an RIA doesn’t drag into a year-long process
5. Start your new RIA with confidence that you’ve made the right decisions and have set up your firm and your clients for future success 

There’s a lot to think about when starting a new RIA, but we’re here to make your path an easier one. Click here to get in touch and start the journey to independence.