Advisers, shoot for $100 million in AUM before going indie

Financial advisers who manage any amount of client assets are free to open an RIA, but those with $100 million have a leg up, said speakers at the InvestmentNews RIA Summit, a virtual conference with close to 700 attendees.

Financial advisers managing at least $100 million in assets under management are best suited to leave the commission side of the retail securities industry to start an independent registered investment adviser.

Leaving a wirehouse or bank to launch an RIA is a tantalizing, if daunting, proposition for many financial advisers. The term is broadly applied to the roughly 300,000 retail-focused wealth managers and salespeople working in the U.S. right now.

If they start their own independent firm, advisers are in charge of the relationship with clients, build their own business and increase personal wealth, with the potential to sell their firm in the future. And in the short-term, advisers also get a higher payout working as an RIA, and typically work with less intrusion from a large bank or financial institution.

Brokers are salespeople and charge commissions; RIAs are fiduciaries and charge clients fees. The two sides of the retail wealth management industry have blurred over the past two decades, but brokers have been leaving Wall Street to work at or open RIAs at a steady and significant pace.

Of course, financial advisers who manage any amount of client assets are free to open an RIA, but those with $100 million have a leg up, according to speakers Tuesday morning at the InvestmentNews RIA Summit, a virtual conference with close to 700 attendees.

“The question is how much in AUM should an FA or team have before moving to the RIA structure,” said Chuck Failla, principal of Sovereign Financial, an RIA who led a discussion titled, “What to consider before going RIA or joining an RIA?”

“I’m going to call it $100 million as a line of demarcation if you had to pick one,” Failla said. “The reason why I like that number is because you already start to have some scale and the firm is registered with [the Securities and Exchange Commission] as opposed to a state, which I think has some advantages.”

“That said, I really believe [an adviser] with $20 million or $30 million in AUM and a laptop, if he or she really has that desire to have their own RIA for friends and family, you could do that,” he added. “But I think it would be harder and more expensive than joining another firm.”

Citing an InvestmentNews study, Matt Matrisian, senior vice president with AssetMark noted that $100 million in assets under management is an industry watermark of sorts. A typical 1% fee means that adviser is generating $1 million in annual revenue, a level where profitability begins to accelerate.

“Again, it depends on the adviser and their goals, but with that concern of having to invest in your business in mind, the $1 million [in revenues] mark or $100 million in assets is a good point of reference,” Matrisian said.

Meanwhile, those looking to open an independent RIA must keep legal and regulatory issues in mind, noted Christopher Winn, CEO of Advisor Assist.

Wirehouse advisers specifically have to tread carefully when setting up an RIA to avoid being accused of having an outside, undisclosed business, which breaks securities industry rules, he said.

And the main components of technology for a newly opened RIA should have three core elements, according to Kyle Hiatt, executive vice president of business development with Orion Adviser Tech. Those are a customer relationship management system, or CRM, portfolio management tools and a financial planning platform, Hiatt said.

Those are the tools of the “fastest growing RIA,” he added.