The RIA business model is growing by leaps and bounds and advisors considering a change have a variety of options to consider, but they also need to take a number of precautionary steps before making the leap, according to Lizzie Warner, vice president, business development and transition for Cambridge Investment Research.
For those advisors who want to make the break to start, join or leave an RIA, a measure of true independence can be achieved, Warner said during the second day of the Invest In Women conference sponsored by Financial Advisor Magazine in Atlanta this week.
Warner outlined the options available and steps that need to be taken to accomplish a successful transition for the “A Time for Change: Starting, Joining, or Leaving an RIA” presentation for Cambridge, a broker-dealer and consulting firm based in Fairfield, Iowa.
Assets managed by RIAs have tripled over the last decade and the channel continues to grow at about 12% per year, making it one of the fastest growing channels in the financial services industry. The options available to RIA wannabes are to go with broker-dealer as an RIA, to be a standalone RIA, or, the least common choice, to split the financial planning and asset management functions under an RIA, Warner said.
For those advisors contemplating a change, they need to hire an attorney and hire a consultant. “I can’t stress the second one enough,” Warner said. Then appoint a chief compliance officer, whether it is yourself or someone else, and register with the appropriate state organization or with the SEC, depending on the size of the firm being created. Those with less than $100 million in AUM can register on the state level and those with more than $100 million in AUM must register with the SEC.
A number of documents are required to be created in forming an RIA, including a privacy policy, a code of ethics and a policies and procedure manual. “Violations of the written policies and procedures of a firm are the most common failures of a firm that we see,” Warner said.
Other considerations to be undertaken are the creation of a business continuity plan, which is required by the SEC to protect clients, a cybersecurity plan, also required by the SEC, and a compliance manual.
“A consultant can help you with all of these,” Warner said.
Other things are optional but are important to the success of a new firm, she said, including the selection of the right custodian and the selection of risk analysis software.
Brand name, website design, and even the color of the logos and website are important, Warner said.
“I encourage you to utilize social media, and, once you start, this is not something you want to quit,” she said. Likewise, a new firm should develop a user-friendly client portal, because clients today want their information available without making a phone call.