RIA startup costs: a guide for advisors/entrepreneurs 

As a finance professional, you may reach a point in your career where you are considering starting your own business. More specifically, you may decide to start your own Registered Investment Advisor (RIA) company or firm. But before you make this big decision and begin setting it up, it is important to know the costs involved.  

What are the startup costs for an RIA firm? Which of these costs should be prioritized? In this article, we delve into the costs involved in starting your own RIA firm and offer valuable insights so you can plan and budget effectively.  

RIA startup costs 

Fearless advisors-turned-entrepreneurs who went ahead with their plans of establishing their own advisory firms will say that their startup costs ranged from $10,000 to $50,000.  

These costs can be lower or higher, depending on your location. Startup costs can vary from state to state. This includes state registration fees, compliance fees, fees for a compliance consultant and a legal consultant, legal fees, and operating costs. Here are some of the common costs you may encounter when setting up your RIA firm:  

• legal formation paperwork 
• attorney and consultant fees 
• renting/purchasing office space and equipment 
• setting up a business bank account 
• CRM and other business software 
• payroll/invoicing systems 
• marketing and branding efforts 
• hiring staff  

First year expenses 

In an ideal scenario, the costs of running your new RIA firm in the first year after its startup phase should run in the range of $20,000 to $30,000. Common first-year operating expenses can include:  

• compliance costs 

• compliance audits 
• updates to Form ADV 
• purchase/subscription of financial planning software 
• purchase/subscription of Customer Relations Management (CRM) software 
• purchase/subscription of tax planning software 
• purchase/subscription of cybersecurity software 
• IT infrastructure 
• portfolio management software 
• custodian fees 
• office supplies 
• office space  
• employee salaries 

A closer look at RIA firm startup costs 

As you set up your RIA firm, what sort of costs should you prioritize and how much will you have to pay for them? Here are some examples of initial startup costs. 

Buying a business plan (cost: about $1,000) 

To have a clearer picture of your RIA startup’s profitability, a business plan is necessary. A business plan is even more important if you don’t have enough capital on hand and need to get a bank loan.  

There are ways to make your own business plan but it’s usually better to hire a consultant to do this for you. When you do, make sure that all the crucial information about your startup RIA is there: standard summary, your products and services, management team, and financial data.  

Incorporating the business (cost: $200 – $600) 

When establishing your RIA firm, the common practice is to incorporate it as an S-Corporation or a Limited Liability Company (LLC). Doing this not only fulfills state requirements for business registration, but it also protects you from personal liability.  

It’s at this stage of setting up your firm that you get to choose your business name. Tempting as it may be, it’s advised not to name your firm after one of the founders or principals. Make sure that the name you choose reflects your firm’s values and is interesting enough to attract clients.  

Investing in technology (cost: $3,000 – $9000) 

In the beginning stages of the business, a single advisor in a small firm only needs a good desktop computer (or laptop for greater mobility) and licensed software like Microsoft Office. This, coupled with an all-in-one printer, can set you back at most $1,000.  

As you hire more staff and get more clients, the cost of getting more equipment and software for your employees will also increase. Make sure that you have enough in the budget to provide employees with all the tech tools they need – from their workstation, software, and communications.  

Much of your tech costs can also go to purchasing advisor-specific applications like CRM tools, financial planning, and portfolio management software. Some applications are not purchasable outright but are on a subscription model. To be safe, allocate an extra $500 for software to ensure that the onboarding and hiring of new employees goes smoothly. 

RIA registration with the SEC or state securities agency (cost: $8,000 or more) 

Processing the registration requirements for an RIA startup is both complex and time-consuming. Since your time is best spent building the business, hiring a compliance consultant or agency to do the paperwork is necessary. 

This entails registering the firm as a whole and registering its individual representatives – this is why it can take time and the process can be tedious.  

Learn how to register as an RIA here.

Form ADV and Form U4, and proof that your advisors have passed their Series 65 exam, are all necessary to avoid future penalties.  

While the registration process can vary from state to state, it takes an average of ten months to complete. Make sure to take this into account and begin registration as soon as possible, or your firm may not begin operations by your target date.  

Hiring a compliance consultant (cost: $600 – $8,000 or more annually) 

Ensuring compliance with state securities regulators, the SEC, and FINRA calls for someone who does this as a full-time job. The sensible strategy is to hire a compliance consultant to handle all this for your RIA firm. The cost of hiring a compliance consultant can vary according to the company you hire and the services you require, but this is a crucial step in securing your business.  

Getting Errors & Omissions coverage (cost: $2,000 – $4,000 annually) 

This sort of insurance coverage is not a mandatory requirement, but it is highly recommended.  
E&O insurance, also known as professional liability insurance, gives your startup RIA adequate protection from claims or allegations. This covers liabilities arising from mistakes, errors, and unintentional regulatory violations. 

As your business finds its legs, you can safeguard your RIA startup from liability and the significant costs of litigation if any legal claims against your business come up. Investing in this type of insurance is very important as it can protect your RIA firm’s professional reputation and financial health. Working without this insurance is extremely risky, to say the least.  

E&O insurance typically costs about $2,000-$4,000 annually. Depending on your state’s requirements, you may also need to a surety bond which can add about $200-$500 in fees.   

Setting up a buffer account (cost: $10,000) 

Starting a business without an established client base is very risky. In the initial stages that your business will not be creating income, it is a wise strategy to set aside additional funds. This is called a “buffer account.”  

You can place an extra $10,000 in a separate account to protect your startup from additional expenses and unexpected occurrences. This precautionary move can give you more peace of mind as you work to establish the firm and generate consistent revenue.  

Advertising and marketing efforts (cost: $800 – $3,000) 

Ideally, an advertising and marketing plan should be executed at roughly the same time as your financial plan. Due to the speed of information on the internet, it’s essential that businesses establish their online presence as soon as possible. Your startup RIA is no exception.  

Start by securing your web domain name, creating a website with relevant info (i.e. contact details, advisor profiles) design your logo, and prepare your business cards.  

You can hire freelancers to do your logo or website design on freelancer websites like Fiverr, 99Designs, or Behance. Most experienced freelance designers’ fees can vary, but one that charges starting at $300 typically provides professional-looking results.  

Preparing for the net capital requirement (cost: $10,000 – $25,000) 

There is a net capital requirement (NCR) for firms registered in any state. The cost may vary and can be higher if you accept custody of client assets.  

This NCR can range from $10,000 to $25,000. Although the SEC does not require a specific amount, they require firms to be able to demonstrate solvency at any time upon request.

Costs and considerations when launching your RIA 

Keep in mind that the costs listed here are merely estimates. The actual costs of these expenses can vary depending on your location and your specific financial circumstances. RIA startup costs in California, for example, may be very different from startup costs in Texas.  

Costs may also rise or fluctuate due to other factors like inflation and market conditions. You may notice that some are ongoing costs, and some are one-time fees. It’s still necessary to do your own research on RIA startup costs. Inflation has sent them rising, so do not expect the costs to remain static; in fact, some of the expenses listed here may have changed by the time you read this article.  

There are so many variable costs to building your IRA startup from the ground up. This video lists some of those costs. The video also says that a small practice can cost a lot less to set up, somewhere in the $4,000 to $7,000 range. Meanwhile, bigger RIAs can cost up to five times that amount to start. 

 You can always consult other more experienced financial advisors who took the plunge and put up their own RIA practice. Make a thorough and detailed budget before you start an RIA.  

Is setting up an RIA firm now a good idea? 

Those of you who have yet to turn a profit after their first year of operations might be having second thoughts about pursuing your startup plans. One piece of advice: don’t give up!  

Statistics show that the number of RIA firms has steadily increased from 2000 to 2022. From a small number of nearly 7,000 firms to more than double that number (15,114) of firms in 2022. This shows that there are plenty of financial professionals who are confident in starting their own RIA firm. It’s also a good sign that there are plenty of clients and huge demand for an RIA’s services.  

More encouraging reports show that the total AUM of SEC-registered RIAs now stands at $114.1 trillion. This is a huge amount that accumulated from 2000 to 2022.  

These statistics may be seen as proof that an RIA firm is a lucrative business and that there is still room for growth.  

Starting your own RIA firm can be an exciting and rewarding venture, especially for financial professionals who want to independently provide personalized investment advice to clients. The financial industry is seeing new tech assist in providing financial services like never before. Nowadays, an independent RIA can only benefit from this. 

But remember, a significant financial commitment is required to launch and sustain such a business. Consider your envisioned RIA firm’s size, scope, services, IT infrastructure, compliance and regulatory expenses, and the support you may need to pin down startup costs. 

By understanding these elements and preparing adequate capital, you can make informed decisions. There’s no reason then for not coming up with a comprehensive financial plan to help set up your RIA firm for success.  

What do you think about the costs of having an independent RIA practice? Is this worth it in your view? Don’t forget, you can always see what the experts have to say, right here in InvestmentNews!