August 03, 2021 | Shoestring RIA
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.
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:
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.