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.
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:
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.
There are three primary fee structures for RIAs:
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.
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:
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.
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.
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):
For software, you’ll want to look into things like:
Finally, you will need an online presence, which will require:
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.