Frequently Asked Questions About Starting an RIA — Answered

RIA Setup Process, Costs, and Pitfalls to Avoid

Many entrepreneurially minded financial advisors are drawn to starting their own registered investment adviser (RIA) because it maximizes freedom and control over their business. They’re comfortable seeing themselves as business owners and setting the vision and direction for their own firm.

If that resonates with you, you’re not alone. The number of SEC registered investment advisers reached a record high in 2023 with 15,396 RIAs managing $128.4 trillion in assets.¹ In RIA 101: Understanding the RIA Model, LPL Financial explored some of the key factors driving this growth. Here, we’ll answer frequently asked questions about how to start an RIA firm and share tips for a successful launch.

How Do I Start an RIA?

Form a Legal Entity

First, you’ll need to organize your firm as a legal entity. Considering factors like liability protection and tax implications will help you choose the right business structure for your needs.

Pass-through entities (limited liability companies, limited partnerships, limited liability partnerships, or partnerships) are the most common business structure for RIA firms. With simpler filing requirements, less administrative overhead, and a tax structure that passes business income directly to the owner’s personal tax returns, these entities are considered easier to establish and maintain than corporations.

Review Your State’s Registration Requirements

You’ll likely register with the state if you manage less than $100 million in advisory assets and the US Securities and Exchange Commission (SEC) if you manage $100 million or more in advisory assets (or will manage $100 million or more within 120 days of registration).

Regardless of whether you choose a fee-only or hybrid RIA business model, you’ll need to comply with your state’s licensing requirements to register as an RIA. In most cases, that means passing the FINRA Series 65 Uniform Investment Advisor Law exam. However, many states allow advisors who carry the following designations in good standing to waive the Series 65:

• Certified Financial Planner^TM (CFP®)
• Chartered Financial Analyst (CFA®)
• Chartered Investment Counselor (CIC)
• Chartered Financial Consultant (ChFC®)
• Personal Financial Specialist (PFS)

Take note that even if you have one of these professional designations and are in good standing, you’ll still need to apply for registration as an investment advisor representative by filing Form U4 and paying the associated registration fees to the applicable state securities regulators.

Register Your RIA with the Investment Adviser Registration Depository (IARD)

When you register with the IARD, it’s wise to seek assistance from an experienced RIA compliance consultant. This is especially important with respect to the timing of when you file for registration, which may trigger a notification to your existing broker-dealer and make them aware that you’re leaving.

At a minimum, you’ll need:

• FINRA entitlement
• Form ADV filing
• Form U4
• Investment Management Agreement
• Privacy Policy
• Compliance Manual & Code of Ethics
• Business Continuity Plan
• Information Security Policy
• Social Media Archiving

How Much Does it Cost to Start an RIA Firm?

Compiling a detailed list of typical startup costs and first-year expenses for RIA firms can help you set realistic expectations and gain momentum faster. Startup costs can range from $10,000 to $50,000, depending on factors like state registration fees, legal and compliance consulting fees, technology costs, and operational expenses.²

Common startup expenses include:

• Legal formation paperwork
• Attorney and consultant fees
• Office space and equipment
• Business bank account
• Tech stack
• Payroll/invoicing systems
• Marketing and branding
• Hiring employees

First-year expenses refer to everything after the initial startup phase. These costs will vary depending on your business model and service offerings, and can run between $20,000 and $30,000.²

Remember that some of your initial expenses will also be recurring. Some of these expenses may be bundled if you join membership-based platforms or can plug into other networks for help with back-office, compliance, and some marketing and technology needs.

Examples of first-year expenses include:

• Compliance, ADV updates, audits
• Custodian fees
• Financial planning software
• Portfolio management software
• Tax-planning software
• Office supplies
• Technology and cyber security
• Office space
• Employee payroll

It’s also important to consider the cost of assuming full responsibility for your compliance program. Whether you outsource compliance oversight to a third-party or hire a Chief Compliance Officer, you’ll need to factor in your time and the financial investment related to risk management.

Read Costs of Compliance for RIA Firms to calculate the hidden costs of compliance.

What are Some Common Mistakes to Avoid When Starting an RIA?

Failing to Register Properly with the SEC

Ensuring that all necessary paperwork is filed on time and that all requirements are met is critical to avoiding fines, penalties, and legal action. On average, starting an RIA can take four to six months.³ Set yourself up for success by taking the time you need to do thorough due diligence on the process, requirements, and strategic partnerships with custodians and vendors.

Not Having a Solid Business Plan or Marketing Strategy

A well-thought-out business plan and marketing strategy can guide the growth and success of your RIA and keep you focused on your goals. Think about your brand identity — the visual and verbal expression of your firm — as well as the services you want to offer, your pricing structure, and target audience.

Once you’ve identified your target audience, tailor your marketing plans with content that addresses their specific pain points and issues they’re striving to resolve. For example, you might segment your audience into the following groups:

• Millennials who are just starting to save for retirement
• Baby boomers who are planning for retirement
• Parents who are saving for their children's education
• Business owners who are looking for ways to invest their profits
• High-net-worth clients who may need more sophisticated solutions or advanced planning

For more tips, read 6 Steps for a Strong Marketing Plan.

Ignoring Compliance Requirements

RIAs are subject to a list of compliance requirements, and adhering to them is important. Failure to comply with regulations can damage your reputation and potentially result in fines and penalties. Therefore, staying up to date on regulation changes and ensuring all of your employees are trained on compliance requirements is critical.

How LPL Financial Can Help

If you’re ready to start your own RIA, look to LPL Startup Solutions for strategic guidance, comprehensive services, and proven strategies to save you valuable time and help you avoid costly missteps. We go beyond piecemeal support to provide:

• Complimentary assessment of your RIA setup needs
• Customized bundle of launch services
• Dedicated startup consultant for comprehensive project management
• Digital experience to track the launch progress
• Elevated support to facilitate faster onboarding

Contact LPL to learn how we can help you launch your RIA with confidence.