Starting Your Own RIA Firm (Part 3): Infrastructure and Regulatory Requirements

The final event of this three-part series was to explore the infrastructure and regulatory requirements new RIA’s need to satisfy. The two previous events focused on the initial personal challenges of starting your own firm and the marketing and business development challenges.

The four speakers featured for this event included:

Carson BoorasMr. Booras is vice president of Institutional Sales for TD Ameritrade. Booras has over 20 years of experience working within the Financial Industry and has been working directly with Financial Advisors for over nine years. Prior to joining TD Ameritrade, Booras built a fee based advisory practice working with Charles Schwab.

GJ KingMr. King is President of RIA in a Box. RIA in a Box currently helps nearly 1,500 RIA’s overcome the compliance and technical challenges of starting a firm. Prior to RIA in a Box, Mr. King held positions at Goldman Sachs serving advisors to high net worth entrepreneurs, families and foundations.

Joseph Mannon Mr. Mannon is an attorney with Vedder Price Investment Services Group, a legal firm with 35 attorneys serving independent advisors. He focuses his practice on legal and compliance matters for investment advisors, mutual funds and vehicles such as hedge funds.

Ravi Wadhwani – Mr. Wadhwani is the Illinois regional sales director for Morningstar’s Advisor Solutions Group, responsible for building relationships with startup and established RIA’s. His focus is on helping advisors build their practices by leveraging research, data aggregation and practice management technology.

Shannon Curley, CFA, began the event with a brief introduction of the speakers followed by a short presentation from each addressing how their firm helps newly formed RIA’s. King provided event participants with a presentation entitled “RIA Registration 101”, which outlined the steps needed for registration and licensing of an RIA. Wadhwani provided a questionnaire entitled “Taming Your Technologies” which helps evaluate the effectiveness of technology.  Carson stated that TD Ameritrade is a fast growing custodian with dedicated transition teams for RIA’s. As an attorney in his firm’s Investment Advisory group, Mannon has a wide range of experience aiding both new, and experienced, RIAs.

The four speakers spent the remainder of the event responding to questions from the audience, summarized below:

What is the biggest mistake new RIA’s make?

  • Mismatch between the advisory contract and the services you provide to clients.
  • Failure to make clear how your new firm will provide a better experience for clients and result in a better outcome.
  • Unexpected delays due to the ramifications of non-compete clauses with a previous employer. You may not be able to take data with you.
  • Technology does not provide the support envisioned resulting in “biting off more than you can chew”.
  • Using an attorney not experienced with this type of work, or not experienced in working with custodians.
  • Neglecting to create a detailed balance sheet for your new business.

 

What registration is required for trading in alternative assets such as real estate, bitcoin or private equity?

  • Real Estate is not a security, so registration is not a requirement.
  • Private Equity is usually done deal by deal using Special Purpose Vehicles (SPV’s) for each. Registration is not required until the aggregate value exceeds $150 million.
  • Educating clients about bitcoin, does not require registration, but participation in an ICO would require registration.

 

What would be the typical cost of setting up an RIA?

  • If there are no prior employment issues, a bare bones cost could be as low as $2,000.
  • Cost increases dramatically if there are prior employment issues concerning non-solicit and non-compete. In the extreme, costs could exceed $300,000.

 

What are the basics for effective cyber-security?

  • It is important to recognize that typically you are the owner of the data, not the custodian.
  • Ownership of professional business level security software is critical.
  • Stay on top of your vendor’s security practices.
  • If your data center goes down, where do you go? Log on to back-up sites.
  • Consider cyber security insurance and know what is specifically covered.
  • Quick reaction is critical if you suspect the worst. Train staff to deal with situations promptly.
  • Payment of ransom is not recommended, reputational issues may result.

 

What is the most effective way to calculate performance?

  • Use one system to generate ad-hoc reports and fees.
  • Reliance on custodial statements is more common.
  • Clients should have access to all their reports at any time.
  • The trend is for fewer reports (less is more). RIA’s are now involved in more holistic tasks for clients that typically do not require performance reporting.

The brief questions at the end focused on the different requirements for short-only RIA’s or those RIA’s that specialize in hedging or options. These activities are acceptable as long as they are spelled out in the advisory contract.

Facebooktwitterlinkedinmail

Leave a Reply

Your email address will not be published. Required fields are marked *