Want to go RIA? Here’s where to start

Now more than ever, financial advisors are considering their independent freedom. That is, getting the freedom to run their practice how they want to. But doing so requires a lot of tools – and time.

Several advisors who have gone independent weigh in on their journey and how they became a registered investment advisor, including the tools advisors should be prioritizing when they start out.

Andrew Evans, founder and CEO of Rossby Financial, says first and foremost, advisors should figure out what their business model and total structure of the firm is.

“Are you enterprise, meaning that you’re going to build out for many team members? Or are you solo? That really then runs your path very differently,” he says. “

That path then revolves around deciding what kind of advisor you want to be, Evans added. “Will you be a portfolio manager? Are you somebody who outsources management or are you just planning?”

Advisors then will have to consider whether they have enough income to register with the SEC or be state registered and whether they want to do things themselves or bring in a consultant firm, Evans noted.

“Once you know what your regulatory situation is, then your tech stack starts to fall into place,” he says.

Tech stacks are likely the most important tool for the advisor and with it, a lot of managers to choose from.

Evans highlighted when it comes to the CRM and tech stack options, advisors should ask themselves whether they need a full robust program, like Black Diamond or “do I want to keep it all in-house or have a one-stop-shop like Orion, where they’re gonna give me a CRM performance reporting, portfolio rebalancing, and all that, or am I trying to keep my costs down?”

Tom Balcom, founder of 1650 Wealth Management, says his decision to go independent was spurred by the flexibility it provides, “driven by quality of life.”

Balcom noted that all advisors who want to go independent should have the following as a starter pack: a compliance consultant for state or SEC registration, a portfolio management system to create client reports, a CRM System to record client conversations and archive emails, have access to an accounting system like QuickBooks, and have an accountant on staff to advise on ways to maximize tax savings.

As for what custodian a potential RIA should choose and the costs that are associated with that, Balcom said that it’s dependable on the advisor and the size of their book.

“If you’re trying to go independent, try to figure out what that the costs will be, if any,” Balcom said.

While the jury is still out on a solid number of how much advisors should have in AUM to start their own RIA, Corey Walen, managing partner and independent consultant at Bridgemark Strategies suggests having at least $500 million.

“One big thing when you move from an independent broker dealer or a wire house, you’re leveraging a lot of their scale, they have a lot of tools and resources,” he said in a podcast with Chuck Failla. “Sometimes when you go to the RIA side, you need to rebuild those things yourself and you need money to do that.”

Rather than starting fresh with a brand-new custodian, Balcom highlighted it may be worth more for advisors to go with who the clients are already doing business with.

“Instead of having to repaper, if [clients are] already at a certain custodian, it might make sense to do that,” he added.

Evans is quick to point out that an advisor’s first year of running their firm is going to cost a lot more than they might have first thought and they should consider that in the mix when planning.

“It doesn’t matter if you have all the money in the world, it’s still going to cost you more than you thought it was, because you’re just getting ramped up. Past year 2, things will settle down and your cash flow will improve,” he says.