How to Start Your Own RIA Financial Practice

Kaplan Financial Education

Do you want to start your own RIA and financial planning practice? It’s an excellent time to start out on your own in the industry. The majority of established advisors with existing RIAs are eyeing retirement, and there’s an influx of new, younger clients who want specialized service from the next generation of financial planners. Not to mention, new business models within the industry provide you with more options to create your own practice that you run your own way.

There’s a lot to think about and consider if you want to launch your own RIA, as well as plenty of details to get lost in. But to give you a high-level (and less overwhelming) overview, start with the biggest questions to answer and issues to address if you want to start your own financial planning firm.

Nail the Basics of Your Business Plan

You don’t need a 50-page plan in order to start your own practice. But you should consider how your business will operate in the real world before you jump into this big venture. You should be able to answer the following questions before moving forward with additional logistics and processes required to start your own RIA:

What problem are you seeking to solve?
What solution do you provide, and to whom?
What makes you different from other financial planning firms?
What kind of costs will it take to run your business?
What will you do to earn revenue, and how much do you need to earn for the business to be viable?
What challenges do you expect to overcome? You don’t necessarily need all the answers right now, but you should anticipate where you may run into trouble and consider a plan for avoiding potential pitfalls.

Consider Who You Want to Serve

You can start your own RIA with the end goal in mind: the clients you one day want to serve. If you open your firm without any idea who your services are for, you may lack clarity and focus.

A purely assets under management model, for example, may not work if your goal is to work with people under 50 who are in the middle of their careers and still working to build wealth. Your target client isn’t in a position to give you 1% of their small nest egg...and 1% of their assets won’t be profitable for you, either.

On the other hand, maybe you’re interested in working with clients who do have assets and want help with more complicated investment strategies. In this case, it makes little sense for you to charge them on an hourly basis. Your expertise is likely worth more than what clients will be willing to pay when the rate is positioned as a per-hour fee.

Choose your ideal client, consider their needs, think about what services you could provide for them, and figure out what they can both afford to pay and what they’re willing to pay. From there, you can choose a business model and pick the tools you need to deliver services in a way that makes sense for the particular client you want to work with. Don't forget to think about how you'll get referrals.

Determine Your Business and Revenue Model

There are three primary fee structures for RIAs:

Assets under management (AUM): You charge a percentage of the clients’ assets that you manage for them. Financial planning services are often provided for free as an “add-on,” and investment management is the main focus.
Hourly or project-based: You charge according to how much time you spend with each client and bill them for the hours you dedicate to working with them.
Subscription: You charge a flat monthly fee in exchange for a defined scope of work delivered to the client. RIAs who charge on a subscription basis often focus on financial planning as the main service the client pays for. Many provide investment management as well, as a separate service with an AUM model fee.

There are pros and cons to each structure. Again, the right one for you will ultimately depend on the type of client you want to serve.

Get Through the Red Tape and Set Up Compliance

Compliance is one of the most complicated things you’ll deal with in creating your own RIA. Before you jump into that challenge, make sure you have:

A company name.
A decision on how you’ll run your company: will you be a sole proprietor, LLC, or corporation? Make sure you file appropriately depending on which path you want to take.
A business checking account.
A way to protect yourself and your business, like E&O insurance.

Next, you need a way to file the paperwork required to establish your RIA. You can do this one your own. But compliance is convoluted and can severely impact your business if you don’t follow the regulations and requirements, so consider hiring an RIA compliance company to work with you. They’ll help you create and file the required documents you need to be a legitimate financial planning firm. Use a company like CS2 Compliance, or Financial Planners Assistance to ensure this is done right the first time.

Will You Practice Virtually or Keep Office Space?

Today’s business models and client expectations, along with options for working virtually, make it simple and easy to start a virtual RIA. This means you don’t necessarily need to buy or rent physical office space. This helps a young RIA save on costs, as there’s no need for office furniture, a store of traditional office supplies, or additional bills like utilities for a new space.

You can meet with clients virtually through tools like Skype or Google Hangouts. You could meet clients in their homes, or even invite them to your own home if you have a comfortable home office space with enough room for clients to meet you there.

Another option is to rent office space as you need it through a company like Regus. You could also connect with your network and rent conference rooms or extra space for meetings from other professionals with established offices.

If you’re set on office space, consider renting from coworking spaces to make it easier to get started. These are cheaper alternatives to traditional standalone offices, and might be more financially feasible for your business as you launch. Many of these setups provide you with shared desk space with other members, but can provide access to private conference or meeting rooms as needed.

Choose Your Software and Tools

There are endless services and products you can buy or subscribe to that you need to run your RIA. Every firm's technology suite and back office tools will look a little different, but your practice needs solutions for basic software and hardware to run the business. Here’s the hardware to consider implementing to get you started (and we’ll assume you’re running lean or completely virtually, for the purposes of this article):

Computer and a way to backup your devices and files along with a means to keep everything secure
Scanner
Cell phone
PO box or UPS mailbox

For software, you’ll want to look into things like:

Video meeting tools, like Skype, Google Hangouts, or Zoom.
Cloud-based document storage, like Google Drive or Dropbox.
A client relationship manager (CRM). Hubspot offers a free CRM, or you can use an industry-specific tool like Wealthbox.
Online scheduling system, like ScheduleOnce or Calendly.
A way to electronically sign documents, like Docusign or Hellosign.
A bookkeeping software and a payment processing system.
Achieving for your website, social media, and emails to stay compliant.
Financial planning software to help you better serve clients.

Finally, you will need an online presence, which will require:

A website itself (you can use a pre-built theme from a place like ThemeForest or hire a designer to create a customer site)
Web hosting
A domain name
A content management system (CMS) like WordPress
Email servers
Social media strategy

There is certainly a lot to think about, but these are the fundamental areas you need to look into and create plans for if you want to start your own RIA. Once you have these pillars in place, you can start adding more details and getting specific with exactly how you’ll establish, run, and grow your own financial planning practice.