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New Year, New RIA

By Tiffany Chamberlain, CIDA

More advisors than ever are “breaking away” from their current arrangement and starting their own RIA.  The trend in starting your own RIA is not limited to licensed advisors of broker dealers and corporate RIAs.  An increasing number of CPAs and insurance agents are obtaining their Series 65 and also starting an RIA to offer this service to their new and existing clients.

Who Is Required To Be Licensed As An Advisor?

Many CPAs, financial planners, and insurance agents may be inadvertently providing the services of an investment advisor to the level of requiring registration, and may not even be aware of it.  According to the SEC, the following meets the definition of an investment advisor, in which case you would need to be registered (whether that means starting your own RIA or joining an existing firm):

An investment advisor is an individual or entity that (1) provides advice or analysis by making direct or indirect recommendations regarding securities or securities markets; (2) for compensation in any form; and (3) engages in the regular business of providing advice regarding securities.   There are some exclusions to this definition, meaning there is no need to register under certain circumstances.

Why Is Now a Good Time To Start An RIA?

Now that the beginning of the year is here, it is an ideal time to start an RIA.  First, the State and SEC regulators are the least backed-up during the first quarter of the year.  This means hopefully a minimal time for application review.  The fourth quarter tends to be the busiest time for regulators, and it takes a bit longer for new application reviews to be completed during this time.  So if you submit your application now, you can have your application reviewed (and hopefully approved) as soon as possible so you can start engaging clients.

Second, since registration fees are due at the beginning of the year, if you start your RIA toward the beginning of the year you will not have to submit annual renewal fees again until the beginning of next year.  I’ve had many clients that submit their application during third and fourth quarter, only to be approved shortly before year-end and having to pay the annual fees again at the beginning of the year when their business has hardly had a chance to get off the ground.

Where Do You Start?

If starting an RIA is something you’ve decided to do, the first step is to decide if you’re going to want assistance with the application process or if you want to try and do it yourself.  If you want to do it yourself and you anticipate having less than $100 million in Assets Under Management “(AUM”) during your first 120 days, a great place to start is the North American Securities Administration Association www.nasaa.org.  From this website you can “Contact Your Regulator” and research your home state’s requirements.  For Securities and Exchange Commission (“SEC”) registration, you can find information at www.sec.gov.

While there are advisors that choose to submit the application themselves, a regulatory risk exists of not providing complete information, and although these items will be brought to your attention (thus creating a delay in application approval) during the registration process, the question arises of how will you create and maintain your overall compliance program, and will it be prepared for a regulatory examination?  To mitigate this regulatory risk, seeking the assistance of an experienced compliance professional takes the undue stress and risk from the advisor to focus on other things, such as business planning and client transition.

How Much Does a Compliance Consultant Cost?

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 ranges anywhere from approximately $2,800 to $3,500 for a single advisor.

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.


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