The first step in opening anew business is to set “the number.” We’re talking about the amount of moneyyou need to survive each month. How much does it take to pay the bills,including your salary? What’s your number? In this post, we’ll help youunderstand some of the most common costs of starting and running an RIA to helpyou plan for your new business.
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Average Startup Costs
Some sources claimthat the average cost to start an RIA is around $10,000. That may cover thebasics, but it may not come close to what your actual costs will be. Ratherthan relying on industry averages, it’s important to understand the costsassociated with your unique business. Don’t quit your day job until you’ve donethe following:
Create a Business Plan
You can do this on your ownif you like, but we wouldn’t recommend it. Banks and credit unions arereluctant to loan to service providers, because there’s no real collateral. A solid business plan could be the difference between approval and denial. The cost to get abusiness plan professionally is roughly $1000.
Estimated Cost: $1000
Form a Limited Liability Corporation (LLC)
You can also go with anS-Corp here if you prefer. The main reason for incorporating is to protectyourself from personal liability, so either option is good. If you use anonline service, this step will cost you between $200 and $600, depending onwhich state you’re forming your RIA in.
Estimated Cost: $500
Find Your Niche & Test It
This is an often overlookedstep that is a common cause of first-year failures. You may believe that your niche idea will work, but have you testedit? The easiest way to do this is through social media. Set up a Facebookbusiness page and a LinkedIn profile for the new concept. Use Facebook boostand LinkedIn Ads Manager to target your niche audience and measure theresponse. This is a standard lean start-up technique. The goal is not to spenda lot of money but to simply test the waters of your niche, so to speak.Investing around $500 should help you get the information you need to assessthe validity of your niche.
Estimated Cost: $500
Build a Website
These steps are in order.Don’t build a website until your niche market has been tested and results arefavorable. A visually stunning, functional website is absolutely essential, soit is important to work with a professional to get the job done right. Websitecosts can vary depending on the complexity and functionality you require. The minimumyou should expect to pay for a simple website is $1,000.
Estimated Cost: Startingat $1000
Build a Technology Stack
You won’t likely beprospecting for senior citizens, so you need tech that will attract millennialsand Gen-X clients. Those folks want an online experience. The monthlysubscription cost for a CRM, client portal, and online performance reportingsoftware starts at about $500 per month, and this cost will scale up as yougrow your client base. You’ll also need a decent laptop and some accountingsoftware. Budget subscription costs for three months and $1000 for the laptop.
Estimated Cost: $3000
Find a Compliance Consultant
This is an area you want topay particular attention to. Filing your registrations and staying compliantwith state, SEC, and FINRA regulations is a full-time job. You do not have thetime to do it yourself, nor should you. There are professional compliance firmsout there that can help you with this. Find the right team and view the moneyyou pay them as a “peace of mind” investment.
Estimated Cost: $4000
File your RIA Registration (and IAR Fees)
The average stateregistration fee for a new RIA is $215. Additional reps (IARs) will cost under$100 apiece annually if your state requires them to register. Some compliancefirms include these fees in their charges, so this step may not cost youanything extra. We’ve included it here for informational purposes. The estimatebelow is calculated for a one-person firm.
Estimated Cost: $215
E&O Insurance & Surety Bond
Invest in a professionalliability insurance policy, also known as “Errors and Omissions” coverage. Thispolicy, which costs around $1800 a year, will protect you if you make amistake. Some states may also require a surety bond.
Estimated Cost: $2000
Owner’s Draw
Remember that question aboutyour number? Unless you’re bringing clients over from a previous firm, you’reabout to start a business with a monthly income of zero. You could live offyour savings for a while, but what if the business fails? The upfront costsoutlined above add up to just north of $12,000. We recommend depositing another$10,000 into an “owners draw” account.
Estimated Cost: $10,000
Advertising & Marketing
You should have come up witha marketing strategy when you created your business plan in Step 1. Round your RIA startupcosts up to $25K by putting aside an additional $3000 to cover advertising,networking, and client entertainment costs. You’re now ready to launch yourfirm.
Estimated Cost: $3000
Good Life Companies Can Help You Launch Your Business
Good Life Companies providesa full range of services to help establish, support, and grow independentfinancial advisor practices. From creating a business plan to marketing,compliance, practice management, and more, we provide everything you need tomanage your business efficiently while keeping costs as low as possible. Get intouch today to learn more.
