Time for Some Homework

October 05, 2021 |

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Congratulations! You’ve decided to take the leap and start an independent RIA.

But before diving in, it’s important to be patient and do your research and due diligence thoroughly. Think of building your business like building a house. First you need a blueprint and then you can lay the foundation.

This article is meant to be part of a blueprint that helps you address the key questions you’ll face on your journey to independence. Being an entrepreneur means having to deal with issues that were previously handled by your employer.

Coming up with the right answers won’t be easy, but you’ve already passed the first hurdle; you’ve made a commitment, you’re not afraid to fail, and, most importantly, you’re not afraid of failing to try.

What follows are a series of choices you’ll have to make for your new business including how much you’ll want — and in some cases need — to spend. There are a lot of moving parts in the RIA business, so while it’s important to do your homework, it’s also critical to be decisive and move on to the next issue that needs your attention. There won’t be any shortage of them and there’s no time to waste.

Lifestyle or Enterprise?

What kind of advisory business do you want to have?

Some advisors prefer having a “lifestyle practice” where you are your own boss and will either completely fly solo or hire at most one other advisor and one or two people as support staff.

Lifestyle practices aren’t concerned with growth after reaching client capacity for one or two advisors. That means a limited number of clients — and limited assets under management and revenue.

But you call the shots and decide how many hours you want to put it in and who you want to work with. If you play your cards right and focus on maximizing your average revenue per client, you can make a very nice living. A recent survey by Kitces Research showed the top 10% of lifestyle practices earning approximately $300,000 a year.

Advisors who are motivated by growth will be looking to build an enterprise firm that will leverage technology and scale to grow exponentially. Entrepeneurs who started RIAs in the past decade now have billions of dollars in AUM and command premium multiples of 10 times EBITDA or more from buyers.

The catch, of course, is that this approach entails increased capital needs and long hours of sweat equity. If this is the way you want to go, remember you always have to think ahead and anticipate future needs to fuel growth.

Your Target Market

You need to decide who your target market is going to be. Corporate executives with concentrated stock issues? Entrepeneurs concerned about succession and liquidity after a sale? Widows? Divorcees? Dentists? Software engineers worried about vesting and IPOs?

What’s your area of expertise? Who do you feel most comfortable with? What group offers the greatest revenue opportunity in your market? Who do you want to work with? What can you do better than the next advisor? Remember, you must be able to differentiate your firm from the competition.

The Nitty Gritty

Put together a business plan. When you’re ready to launch, be prepared to pay a filing fee for a limited liability corporation and an RIA registration fee. You’re also going to need business liability insurance and professional liability (E&O) insurance. And depending on your state you may be required to maintain a minimum net worth, typically between $10,000 and $15,000.

What you will charge is an important part of your business plan.

The most popular method is charging a percentage of assets under management, usually around one percent. Most advisors include financial planning services as part of this fee, but some charge extra for planning.

Advisors can also charge by the hour or project, usually between $100 and $200 an hour.

Subscription fees are also an option. Advisors charge a flat monthly fee and provide a defined scope of service, which is usually financial planning.

Parting is such sweet sorrow

Hire a lawyer. Review compensation and other agreements you signed with your previous employer and check for any restrictions that may impact when and how you transition to your new firm.

Review training agreements, confidentiality restrictions, promissory notes, forgivable loans, and non-solicitation and non-compete agreements.

Determine if the Broker Protocol, used by some wirehouses to set up guidelines for what departing advisors can and can’t do, applies to you.


You already know that financial services is a heavily regulated industry, but you probably haven’t had to sign off on compliance requirements with federal and state agencies. For the owner of an RIA, having a good compliance expert is as important as a having a good mechanic is to the owner of a car.

Compliance is one of the biggest expenses for a start-up and is ongoing. Initial registration documents have to be filed, the SEC will need information for its form ADV, a compliance manual must be created and contracts and marketing materials must be reviewed.

A number of law firms around the country specialize in RIA compliance and companies such as Foreside, RIA in a Box, and XYPN provide more generic compliance services and support.


For RIAs, Charles Schwab, Fidelity and BNY Mellon Pershing are the largest custodians, but tend to be best suited for larger advisory firms with around $100 million or more in AUM.

There is another tier of custodians, including Shareholders Services Group, Trade PMR, Folio Institutional and Apex Clearing, who are happy to work with smaller firms and start-ups.

And don’t forget that in addition to clearing trades, custodians also work closely with RIAs to provide access to a variety of financial products, technology options, educational resources and practice management consulting.

It’s a buyers’ market. Custodians want your business. Shop around and see which firm is the best fit for you.

This is just the beginning. In the next article we will go through a check list of items to tackle to successfully launch your RIA.


The Shoestring RIA is a series of articles written and published by the BillFinTM team at Redi2 Technologies designed to help RIAs as they start out on their own. We recognize just how challenging it is to venture out and build a successful business. Our articles will be focused on helping these new businesses with a wide range of topics.











Sophia Bera’s Setting Up An RIA and Starting a New Financial Planning Practice on Less than $10,000 

The 26 Steps I Took To Set Up And Launch My Own Independent RIA

First Year Budget Template

Costs to Register as a Registered Investment Advisor Firm

Understanding the Costs of Starting and Running an RIA