The Top 5 Questions to Ask Before Going Independent

Posted by GJ King, RIA in a Box, on July 17, 2013

Are you thinking of starting an RIA but aren't sure where to begin? Here are the top five questions you should ask before going independent as given by leading RIA registration and compliance firm, RIA in a Box:

1. What does it cost to register a new RIA firm? It does not cost a fortune to register a new RIA firm. RIA registration consulting firms should be able to set up an RIA firm and provide the firm with all the initial compliance documents for under $3,500. The RIA will be responsible for paying an annual fee to the state(s) and possibly the SEC. In general, these fees are around a few hundred dollars per state. Individual investment adviser representatives are also charged an annual fee by the state(s), which is generally under $100 for most states. A new business entity can generally be formed with the relevant state(s) for a few hundred dollars. Most RIAs will also purchase errors and omissions insurance which generally begins at around $2,000 annually depending on the size and complexity of the firm. Thus, there is not a large upfront capital investment required.

2. Do I need to register with the SEC? Not all RIAs register with the SEC. Generally, only RIAs with over $100 million in assets under management (AUM) are permitted to register with the SEC and RIAs with less than $100 million in AUM are required to register with the proper state(s). However, there are some common exceptions which require an RIA with less than $100 million in regulatory assets under management. Some of these exceptions include:

  • An RIA with its principal office and place of business in Wyoming may register with the SEC regardless of AUM
  • An RIA with its principal office and place of business in New York may register with the SEC if it has $25 million or greater AUM
  • Advisors to investment companies registered under the Investment Company Act of 1940 must register with the SEC regardless of AUM
  • Advisors that would be required to be registered in 15 or more states may choose to instead register with the SEC regardless of AUM
  • Internet-only RIAs may register with the SEC regardless of AUM

3. Will my RIA be regulated by FINRA? FINRA does not regulate RIAs. FINRA does however administer the Web IARD portal online filing system and the FINRA entitlement application process which are both utilized by RIAs registered at both the state and SEC levels.

4. I'm an individual investment advisor representative, do I need to be registered to an RIA to conduct business? Yes, an individual investment advisor representative does need to be registered to an RIA firm in order to conduct business. Similarly, every RIA firm needs at least one investment advisor representative registered to the firm. Thus, a prospective investment advisor looking to start his or her own advisory business would need to register a new RIA firm, either with the SEC or relevant state(s), and then have his or her own individual registration registered to the new RIA firm at the state level. All individual registrations are administered at the state level regardless if the RIA firm is registered at the SEC or state level.

5. As a prospective investment advisor representative, I hold the Series 7 and 66 licenses. Do I need to take the Series 65? If you currently hold the Series 7 and 66 licenses, a prospective investment adviser representative may not need to take the Series 65 exam. While there are a few exceptions, if you have successfully passed both the Series 7 and 66 examinations and have been affiliated with a broker/dealer in the past 24 months, than a prospective investment advisor representative will generally not be required to take the Series 65 exam as the active Series 7 and 66 combination will suffice.

Visit http://www.riainabox.com/ for more information.

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