Thinking About Starting Your Own RIA Firm?
If you are thinking about starting your own RIA firm, you are probably in the process of doing your research and weighing the pros and cons of going independent. After all, building a company from the ground up is no small task. But, for the right advisors the rewards of striking out on their own are ripe for the picking.
The following article outlines the upsides of starting an RIA firm and poses some questions you will want to answer before you plan your next move. If you have specific questions about starting your RIA firm, please check out our Registration Handbook for more information.
The Rise of the RIA Firm
The financial services industry is undergoing a period of considerable disruption. Investment advisors who traditionally went to work for broker-dealers are now opting to start their own Registered Investment Advisor firm at an increasing rate.
According to Cerulli Associates, the overall headcount of independent and hybrid RIA channels has soared in the last decade, from 18% to more than 27%, and is expected to surpass the 30% mark by 2029. In the wake of this growth, custodians, technology providers and compliance firms have expanded their services to cater to the growing demand from RIA firms. The result of these enhancements makes it easier for Advisors to leave their broker-dealer and start their own RIA.
The Benefits of Starting an RIA Firm
As interest in the RIA model continues to grow, and support for starting and managing a firm becomes more available, many advisors are upbeat about the possibilities of working directly for their clients as a fiduciary. Much of this enthusiasm stems from understanding the true benefits of starting an RIA firm, which include:
- Autonomy: According to the 2019 Breakaway to Independence Survey conducted by TD Ameritrade, the number one answer advisors gave for moving to the independent RIA model was, “more control” (34%). The fact is, when you start an RIA you have complete control over every decision related to your business.
- Income Potential: As an RIA, you determine how much revenue your firm can keep – up to 100%. With this flexibility, you have complete control over your fees and expenses. You also build equity in your business for a higher long-term payout if you sell or monetize the firm.
Typical Advisor Payouts by Channel
| Channel | Maximum | Average | Minimum |
|---|---|---|---|
| Bank broker-dealer | 55% | 36% | 20% |
| Wirehouse | 53% | 43% | 20% |
| Regional broker-dealer | 52% | 40% | 23% |
| Insurance broker-dealer | 96% | 59% | 5% |
| Independent broker-dealer | 98% | 88% | 40% |
| RIA | 100% | 100% | 100% |
Flexibility to Keep Your Commission-Based Business
In addition to greater income potential, RIAs with successful brokerage businesses can choose a hybrid model that allows them to maintain their commission-based business through a third-party IBD.
Greater Access to the Right Tools
As an RIA, you can choose the technology and tools that best suit your needs. This allows RIAs to find new ways to enhance client relationships, streamline workflows, and access key insights.
Stronger Client Relationships
More traditional investment firm models often limit the products or services you can offer. As an RIA, you’re a fiduciary — legally and ethically required to serve your clients’ best interests. That means stronger, longer-lasting relationships based on trust and customized advice.
Is Starting an RIA Firm Right for You?
The process of creating, registering and operating an investment advisory firm isn’t for everyone. As you consider starting, or even joining an RIA firm as an IAR, you should first ask yourself the following questions:
- Will I be better suited to serve the needs of my clients if I start, or join, an RIA firm?
- Will your current clients support your move and make the transition over to your new firm?
- Will you be able to attract new clients and grow your business faster at an RIA firm?
Most advisors who ultimately start their own RIA firm answer “yes” to all three of the above questions. Not surprisingly, this same group of advisors who go on to declare their independence also possess similar characteristics. These traits include:
- An Entrepreneurial Spirit: Advisors who go independent are self-starters who are organized, goal-oriented, and willing to sacrifice short-term wins for long-term success.
- An Ability to Develop and Maintain Strong Networks: Whether it’s finding new clients or recruiting other IARs, successful RIA founders are great relationship builders.
- A Desire to Put Their Clients First: They want the freedom to make decisions and offer products based solely on what’s best for their clients.
- A Passion for Financial Planning and Wealth Management: The best advisors are curious, analytical, and deeply committed to helping their clients achieve long-term goals.
If you’re deciding whether to start your own RIA, think about what you want for your future—more control, more flexibility, and the chance to build something your way. Also consider the practical side, like compliance and operations. The good news is that there are firms that can take much of that burden off your plate by handling your initial registration, ongoing compliance, and even brand management tasks.
Conclusion:
Starting an RIA can be a great move if you’re excited about independence—and with the right support behind you, the process becomes much more manageable.
