How much does it cost to start an RIA firm? (2024)

FAQs

How expensive is it to start an RIA? ›

RIA Startup Costs

While some sources suggest an average cost of around $10,000 is required to start an RIA, it's important to note that this figure may not accurately represent your specific business. Understanding the unique costs associated with your RIA is essential.

RIA Firms can have a valuation of 1.5 to 3.3 times their annual revenue.

This generally ranges from $10-$25k. Second is the cost for the consulting firm to provide you with compliance guidance on a going forward basis. This generally ranges from $8-$15k per year.

While it may only take a month or two to get a firm registered as an RIA, typically advisors take about six months to fully complete the transition. Depending on the complexity of your business model, however, this timetable can be expanded or compressed down to weeks or even days.

Bank Ownership of a Registered Investment Advisory Firm

A key business driver for financial institutions considering an affiliated RIA is the prospect of full control of the business activity.

Understand that it may take a year or more to fully launch your RIA firm – and that's okay. Being thorough and compliant is more important than being fast, and starting an RIA firm is both complex and time-consuming.

Many entrepreneurial-minded financial advisors are drawn to starting their own RIA because it maximizes freedom and control over their business. They're comfortable seeing themselves as business owners, calling the shots, and setting the vision and direction for their firm. If that resonates with you, you're not alone.

Paid much like mutual fund managers, RIAs usually earn their revenue through a management fee consisting of a percentage of assets held for a client.

“The high profitability rewarded the owners/partners of top firms with pretax income per owner of almost $3.1 million, or almost five times higher than the $640,000 income per partner for all other firms.” The 2021 leap in profits at RIAs should hardly be a surprise.

What is the average size of an RIA firm? ›

The report identified at least 21 RIAs with an average account size over $100 million, as well as an overall mean client balance of $2.7 million and median of $386,646 across the thousands of firms.

According to Investment News, 25% has been the benchmark for RIA's profit margins. However, in 2021, RIA's profit margins jumped to 30.6%. Therefore, it is possible to reach your eight-figure exit with $1.5M or more in gross revenue.

CCO (Chief Compliance Officer)

Under SEC regulations, each RIA firm is required to have a CCO, someone who is in charge of compliance for that firm.

The average advisor spent $17,400 on marketing in 2022, according to an in-depth survey conducted by Broadridge. That same survey found that registered investment advisors (RIAs) typically have a larger marketing budget, spending $27,800 annually versus the $9,700 spent by independent broker-dealers.

The Key Differences

Fiduciary standard: RIAs are fiduciaries, always required to act in their customers' best interests. While some financial advisors may also be fiduciaries, not all are bound by this duty. Compensation: As fiduciaries, RIAs typically use fee-only or fee-based models.

While there are no legal requirements for RIAs to get certified, clients may prefer to work with an RIA who holds an industry-specific certification. Consider seeking the following certifications to enhance your qualifications and provide proof of your competency as an RIA: Certified Financial Planner (CFP)

If you see yourself as a business owner and are comfortable making the majority of the decisions, starting an RIA could be the right fit for you. Joining an RIA could be appealing if you'd prefer to plug into time-saving business, compliance, and back office support.