Why Start an RIA on a Shoestring?

August 03, 2021 |

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Becoming an RIA is an attractive option for many advisors. Young advisors just starting out may want to strike out on their own. Perhaps they are dissatisfied with their compensation arrangement, or they have their own ideas about how best to serve clients and use technology. While others, like “lifestyle” advisors, are satisfied with their current level of production, and simply want to maintain their lifestyle by serving the clientele they currently have. Still others may decide to leverage becoming an RIA into a new career.

Whatever the situation and reasons for pursuing registering as an independent advisor, studies show that RIAs share strong views on client satisfaction and client relationships.

A poll of independent financial advisors on the motivating factors behind leveling up found that 94% cited the “freedom to do what’s best for clients” and 73% attributed a greater ability to “build better, longer-term relationships”. Also asked about any of their misgivings about the transitioning to RIA status, 90% of RIAs said they have “no regrets” about the transition to independence and “would do it again”, further, 70% increased their revenues after going independent.

Without a doubt, entrepreneurial advisors have strong desires to help their clients live better lives by helping them achieve their financial, investment, and retirement goals. In that pursuit, the benefits of becoming an RIA gives them the freedom to do so.

  • Control Over Product Offerings — Unlike advisors who work for broker-dealers and are subject to their product choices, RIAs can control which products they offer their clients, whereas operating under a broker-dealer advisor may only have permission to sell approved products.
  • Choice in Technology Stack — Technology can significantly differentiate one advisor from another while streamlining operations. Since RIAs can choose from the latest technology to support their business, they can remain more competitive than their lesser equipped rivals. Additionally, because of their small size, they may not suffer the same limitation, like vendor lock-in, that larger broker-dealers must deal with when updating their technology.
  • Choice of Fee Structure — RIAs are able to choose a fee structure that is most effective and efficient for them and their clients. And because they don’t share them with a broker-dealer, RIAs are able to retain more profits. A majority of RIAs charge asset-based fees, but other structures include commissions, hourly, subscriptions, or a hybrid fee- and commission-structure.
  • Control of Client Communications — RIAs have freedom in their sales and marketing communication which affords them the room to live up to the fiduciary responsibility to their clients. They can offer advice and promote whichever products and services that can best fulfill their client’s goals because they are their own boss.

How Long of a Shoestring?

The shoestring journey is a frugal way to advisor independence. A fact that advisors may believe sounds “cheap” and fear it will leave a mark on their professional reputation or dissuade client’s from doing business with them. Not so. Remember the statistic above, 70% of RIAs increased their revenues after achieving independence

That’s because, cost effectiveness through frugality is a sure way to pass on value to clients. The more clients are aware of their advisor’s prudent business choices, the more they will be comforted that their money is with a responsible steward. So, ensure to relay that sentiment to your clients.

A solo advisor, managing less than $20 million AUM, is going to need a minimum of $10,000 to establish themself as a new RIA firm. The three most-expensive up-front costs are registration assistance, insurance and technology. The following briefly highlights each of those:

  • Registration Assistance — One of the first steps in becoming an RIA is to register yourself with the SEC or state authority. Hiring a compliance consultant will cost between $3,000-$4,000. This may seem sizable and you may want to save money by completing this step on your own, but it’s well worth the expense considering the complexities of compliance and the penalties that could occur. Simple errors can result in fines. If the SEC issues deficiency letters for incomplete forms it will postpone the registration process. Or in worse cases a mark left on your record could require disclosure to every new and existing client. Ensure this step is done right by hiring a compliance consultant.
  • Professional Liability Insurance — Errors & Omissions (E&O) insurance may or may not be required by the state where you establish your RIA. Despite that fact, it’s never advisable for newly established RIAs to operate without this protection. Although based on the total AUM of the firm, most solo advisors can expect to spend between $1,200-$1,800 annually. But pay careful attention to the fine print, professional liability insurance policies can come with a number of exclusions.

Technology — Today RIAs can choose from a plethora of hardware and software options that will help them reliably run their business. The purchase of hardware like a desktop or laptop computer, a scanner/printer, networking equipment, and a phone could run around $1,200 total. While software must also be carefully considered as many products can make operations lightyears more efficient and easier compared to running a business reliant on spreadsheets. Consider business software like Microsoft Office, Zoom, QuickBooks, and advisor specific software including CRMs, portfolio management and financial planning apps. Many software applications are now billed monthly or annually, and are cloud-based, but expect to spend around $500 up-front.

In later articles, we’ll break down the costs for major expenses in more detail, explore the registration and legal processes, discuss many of the technology options that make running your own RIA possible and efficient, and address other business issues that are unique to RIAs.


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.