Compliance Considerations for Starting a New RIA
By Tiffany Chamberlain, CIDA
“Wherever you see a successful business, someone has made a courageous decision.” – Peter F. Drucker
Starting your own RIA can be both stressful and exciting. After considerable thought and conducting research and analysis of the pros and cons, you’re ready to take the next step and file your application…but where do you start?
The first step is to establish an IARD account with the Financial Industry Regulatory Authority (“FINRA”) so you can file electronically and pay all required fees. The next step is to determine if you should file with the Securities and Exchange Commission (“SEC”) or state securities authorities. Recent changes resulting from the Dodd-Frank Act require that generally, RIAs that anticipate at least $100 million in Assets Under Management (“AUM”) within the first 120 days of business register with the SEC, while anticipation of AUM under $100 million should register with the appropriate state securities authorities. Although this is the general rule to which most advisors fall under, there are exceptions to this and it is important to determine if any of the exceptions are applicable to your particular firm. Once it is determined in which jurisdiction to register, it is important to know what documents need to be submitted with the initial application (this varies by State and SEC) and how long this entire process is expected to take for your planning purposes.
Whether or not you are required to submit certain documents at the time of the initial application, firms are required to have complete compliance programs and documents established at the time of bringing on clients. Registered Investment Advisors are subject to the regulations of the Investment Advisers Act of 1940 (“the Act”), and compliance programs should be designed to reasonably prevent, detect, and correct violations of the Act. Being responsible for your own compliance program is one of the primary differences between being a captive versus independent RIA. The possibility exists at any time subsequent to approval for a regulatory examination. It is critical that marketing and advertising documents, written policies and procedures, disclosure documents, and other required compliance documents meet the regulatory requirements.
In an effort to save on costs, some small RIAs try to handle all of this internally, only to get frustrated when their registration application is delayed due to missing information. This unexpected time delay can result in lost revenue. An increasing number of advisors are engaging a compliance consultant to handle the initial registration process and establishment of the compliance program. For a flat fee in most cases (an hourly fee in other cases) a compliance consultant can help establish your new independent RIA firm and make sure you’re set up properly. The cost to hire a compliance consulting firm to set up your new RIA typically can range anywhere from approximately $3,000 to $11,000, depending on the number of advisors, types of business, and level of customization of documents. Outsourcing this leaves more time for you to focus on the planning of transitioning your clients to your new firm and also provides you peace of mind, knowing that you will be covering all your bases.
Tiffany Chamberlain, Managing Director of Polaris Compliance Consulting, LLC, advises State and SEC Registered Investment Advisors on regulatory compliance requirements. She assists advisors wanting to start their own RIA, in addition to advising established RIAs with their on-going compliance requirements. To learn more about Tiffany and the services of Polaris Compliance Consulting, please visit www.polariscompliance.com.Tags: ria compliance;compliance consulting;ria firm
