Have you ever wondered how much it would cost to start your own registered investment advisor (RIA) business? Launching an advisory firm comes with its own set of unique startup costs, which can vary depending on factors such as the firm’s size measured by assets under management (AUM), the number of clients, and the number of advisors or staff members. Starting your own RIA requires careful planning and financial consideration. Determining your monthly expenses, including your salary, is the crucial first step in setting up a successful RIA.
In this guide, we will outline the estimated costs for launching a firm with less than $20 million in assets under management (AUM). Based on our experience, we have found that such advisors can create a new RIA firm with upfront costs totaling around $25,000. Here are the important steps that an advisor must follow when taking the leap to join the RIA space.
RIA Startup Costs
While some sources suggest an average cost of around $10,000 is required to start an RIA, it’s important to note that this figure may not accurately represent your specific business. Understanding the unique costs associated with your RIA is essential.
Here are some areas to which you should pay close attention:
While you can create a business plan on your own, it’s advisable to seek professional help. Service providers, like banks and credit unions, are often reluctant to lend without real collateral. A professionally crafted business plan can significantly increase your chances of approval. Typically, the cost of a professionally developed business plan is approximately $1,000.
By incorporating your business, you protect yourself from personal liability. The most common entity structures are the S corporation (S-Corp) and limited liability company (LLC). Through our experience, most RIAs choose an LLC structure. Costs for this step range from $200 to $600. Though the cost could increase, depending on the state or states in which you choose to register. You may also need an agent for service if you register in a state where you do not have a physical place of business. Included in AdvisorLaw’s flat fee for new RIAs are articles of incorporation and entity registrations, with an additional fee for individual state registrations.
At this step in the process, you’ll need to select a name for your new firm. While it may be tempting, we recommend refraining from naming your firm after a principal. This can limit potential growth opportunities and keep your firm in a box. Take your time and make sure that the name of your new company reflects your values and is intriguing for your clients.
Create A Detailed Website:
A functional and visually appealing website is crucial. Working with a professional web design company or digital marketing team will ensure quality and engagement. These professionals can also assist with search engine optimization (SEO) and increase your page authority and chances of showing up on search engines. Website costs will vary depending on your specific needs and the complexity of your products, but the cost of building a website typically starts at a minimum of $1,000.
RIA firms should have access to a wide range of technology and software solutions, catering to different budgets and needs. In the initial stages, a small practice advisor typically needs to invest in a new computer and desktop software, like Microsoft Office. A reliable laptop bundled with Microsoft Office, along with a scanner/printer combo, can be purchased for approximately $1,000.
The majority of advisor-specific software applications, such as customer relationship management (CRM), portfolio management, and financial planning, as well as general small business software, like MorningStar, operate on a monthly billing cycle without requiring significant upfront payments. However, it is prudent to allocate an additional $500 for upfront software costs for a smooth setup process for your firm. AdvisorLaw offers our Nexus Enterprise Platform that includes all of the services in one and costs approximately $2,000-$3,000 per year. We estimate all of the costs together will likely be around $2,000 to $9,000, depending on the size of your firm.
Utilize A Compliance Consultant:
Cost: $600-$8,000+ per year
Compliance with state, SEC, and FINRA regulations is a full-time job that requires professional expertise. To properly file and maintain compliance, we advise enlisting the services of a compliance consultant. The cost will vary, depending on the firm you choose and the services you require, but this should be considered an integral investment.
AdvisorLaw specializes in offering comprehensive SEC and state-registered RIA compliance consulting, including our highly sought-after Outsourced CCO services.
With our Ongoing Compliance services, you’ll receive proficient and live support to help you to set your firm up correctly and be prepared for SEC or state exams. We offer advanced technology integration, efficient automation, policies and procedures reviews, customized calendars, ongoing reviews and updates, annual filings, and more.
Our Enhanced Ongoing Compliance option provides an additional level of support, including email and trade reviews, as well as extensive reporting tools. We simplify the compliance process so you can get back to leading your business.
As your Outsourced CCO, we alleviate the burden of hiring and managing an in-house CCO. We offer a flat monthly fee, saving you the costs associated with salaries, taxes, insurance, and ancillary expenses. Moreover, you can deduct our services as professional expenses.
For most firms, compliance consulting will range from $600 to $8,000, depending on their needs.
RIA Registration & SEC or State Filing:
Navigating the registration process for an advisory firm is both intricate and time-consuming, with variations from state to state. Failing to handle this process properly can consume valuable time and expose you to future regulatory risks. For a smooth and compliant registration, most firms will allocate approximately $8,000 for compliance consulting fees. These fees encompass registrations for the firm and individual representatives, as well as the creation of necessary compliance documents for a single state or the SEC.
It’s crucial to recognize that the registration process, even when managed with utmost efficiency, state registration can stretch up to ten months. Therefore, initiating the registration process early on in your planning is of utmost importance. By doing so, you allow ample time for the necessary procedures, thereby reducing potential delays and ensuring a timely launch for your advisory firm.
While the state may not always mandate it, we highly recommend that all new RIA firms prioritize obtaining adequate insurance coverage, particularly in relation to errors & omissions (E&O) coverage. E&O insurance, sometimes known as professional liability insurance, offers valuable liability protection, albeit with certain restrictions, for errors, mistakes, and unintentional violations of regulatory rules that may occur. By securing E&O insurance, you can safeguard your firm from potential liability and the substantial costs associated with litigation, should allegations or claims against your business arise. Investing in E&O insurance is a proactive step toward protecting the financial and professional well-being of your RIA firm. It is not prudent to operate a firm without it.
The cost of an E&O insurance policy is typically around $2,000-$4,000 annually. Depending on your state’s requirements, you may also need to secure a surety bond which will add around $200-$500 in additional fees.
Net Capital Requirement
Each state has a net capital requirement for firms registered in its state. These amounts vary and are different if you accept custody of client assets. They generally range from $10,000 to $25,000. The SEC doesn’t have a numerical value, though it requires that you be able to show solvency at any time, upon request.
Have A Buffer Account:
As you embark on starting a business without an established client base, it’s important to acknowledge that your monthly income will be nonexistent at the beginning. To mitigate that financial gap, it is prudent to set aside additional funds. Consider specifically allocating an extra $10,000 to a separate account, so that it may serve as a buffer for personal expenses and unforeseen circumstances that may arise during the early stages of your business. This precautionary measure will provide you with financial support and peace of mind as you navigate the initial period of building your client base and generating consistent revenue.
Advertising & Marketing:
During the business planning stage, you should have already formed an advertising and marketing plan. It is essential for new RIA firms to establish their online presence by securing a web domain name, designing a logo, obtaining business cards, and creating a basic website. When reserving a domain, services like GoDaddy offer options at approximately $15. To create a logo, many advisors now prefer crowdsourcing platforms, such as 99designs, where logo design packages start at $299. Vistaprint is a cost-effective choice for ordering business cards, with prices starting around $15 for a set of 500. For a basic and compliant website, services start at a rate of $499. Allocating an additional $3,000 to cover advertising, networking, and client entertainment expenses will contribute to a highly-professional image that will yield long-term benefits and credibility for your firm. We estimate these costs to range from $800 to $3,000+.
Launching Your RIA: Costs, Considerations, & Expert Support
Remember, these costs are estimates, and the actual expenses for starting an RIA may vary based on your specific circumstances. It’s crucial to conduct thorough research, consult with professionals, and create a detailed budget before embarking on your RIA journey.
Comprehensive Services for New RIAs with AdvisorLaw
At AdvisorLaw, we provide comprehensive services to help establish, support, and grow independent financial advisor practices. From business plan creation to compliance, and practice management, we offer everything you need to efficiently manage your RIA while minimizing costs.
Custom RIA Setup & Ongoing Compliance Support
If you’re seeking independence with a beginning compliance program in which you can have confidence, AdvisorLaw can help. We offer custom RIA setup and registration services, as well as ongoing compliance support for RIA firms. Our compliance teams are comprised of attorneys and Certified Securities Compliance Professionals (CSCPs) so that your RIA starts off in compliance with the multitude of regulations it is required to comply with.
Taking Your RIA From Concept To Reality
With AdvisorLaw’s registration package, you can take your RIA firm from concept to a fully-functioning business. We recommend allowing 90 to 120 days for RIA setup before your launch date. Our services include drafting and filing necessary documents, creating compliance manuals and policies, developing client agreements, and addressing cybersecurity and business continuity planning, among other crucial aspects.
Gain Autonomy & Control With AdvisorLaw
Gain the autonomy, flexibility, and control you desire by establishing your own RIA firm. Let AdvisorLaw guide you through the process and provide ongoing compliance support — allowing you to focus on creating long-term value for your clients.