Does any one have any experience in starting a fund or RIA. I have couple of years good track record using value investing principles and have 18-20 members interested in becoming my clients. Any help would be greatly appreciated.
I don’t but will be following this thread closely. Good luck.
Setting up an RIA is actually pretty easy. How much money will you be managing? Over $25 million and you have to register with the SEC.
I am expecting initially close to $1MM - $2MM. Not a whole lot. I came to know that if you need to start RIA, I need to finish series 7 & 63. If I go RIA route, I would write this after my CFA level 2 test. Longtime back I passed CFA level 1 and did not continue CFA (kids and full time job) until recently. When I talked to few hedge funds, they said CFA would be helping to bring credibility if I ever go in taking institutional money. So I have decided to continue my CFA. I am glad that I am writing CFA level 2 test because this is helping me quite a bit practically. How does the fees work in RIA?
I think you can get the Series 65 and avoid the 7 and 63 to start a RIA. If you have less than 25m you should just need to register with the state once you pass the 65. I believe the fees are a few hundred a year plus lawyer expenses.
drk Wrote: ------------------------------------------------------- > I am expecting initially close to $1MM - $2MM. Not > a whole lot. I came to know that if you need to > start RIA, I need to finish series 7 & 63. This is incorrect. As an RIA you will be paid for investment advice. All you will need is the series 65. If I go > RIA route, I would write this after my CFA level 2 > test. Longtime back I passed CFA level 1 and did > not continue CFA (kids and full time job) until > recently. When I talked to few hedge funds, they > said CFA would be helping to bring credibility if > I ever go in taking institutional money. So I have > decided to continue my CFA. I am glad that I am > writing CFA level 2 test because this is helping > me quite a bit practically. How does the fees work > in RIA? Fees are generally a percentage of AUM. You decide what to charge and you will disclose this fact on your form ADV part II. As noted above if you are over 25M you will be govered by the SEC, under 25 is handled by the state. You state securities commission will have all the forms you need to get started. BTW, I started my own RIA about 5 years ago. Edit: If you are asking about the fees to BE an RIA they depend on how many IARs you have (Investment advisor Reps). The firm will be the RIA and you will be and IAR. If it is just you it will run you about $600-700 per year.
Are you still working full time for someone?
Yes. I am struggling to make this decision to quit a stable income and start something on my own. Obviously, you will not get paid much in the first two years unless my returns are similar to what I got in the last two years which I know is almost impossible with these kind of valuations. I am going to invest 90% of my life savings. There is absolutely no conflict of interest as I eat my own cooking. Under RIA, can I structure the fees differently so that I will not get anything for the first 6% return and only a percentage of anything more than 6%. How tough is series 65 and how long it will take to prepare for this test? How do you take care of the back end stuff? Who is a good broker - any recommendation?
drk Wrote: ------------------------------------------------------- > Yes. I am struggling to make this decision to quit > a stable income and start something on my own. > Obviously, you will not get paid much in the first > two years unless my returns are similar to what I > got in the last two years which I know is almost > impossible with these kind of valuations. I am > going to invest 90% of my life savings. There is > absolutely no conflict of interest as I eat my own > cooking. Under RIA, can I structure the fees > differently so that I will not get anything for > the first 6% return and only a percentage of > anything more than 6%. How tough is series 65 and > how long it will take to prepare for this test? > How do you take care of the back end stuff? Who is > a good broker - any recommendation? Series 65 is not hard by any stretch. I would recommend a friendly RIA platform such as Schwab or TD AM. Stay away from Fidelity.
Yeah, the 65 is easy. The fee structure at most RIAs isn’t based off of performance, just AUM. Most have breakpoints (e.g. 1.5% for anything under $200k, 1% for $200-500k, and 60 bps for anything over $500k). Most of the guys I work with use Schwab and like it.
ouch - 6% before you get paid? 2% per annum could outperform the S&P500 for the next 5 yrs. Just saying
Sweep the Leg Wrote: ------------------------------------------------------- > Yeah, the 65 is easy. The fee structure at most > RIAs isn’t based off of performance, just AUM. > Most have breakpoints (e.g. 1.5% for anything > under $200k, 1% for $200-500k, and 60 bps for > anything over $500k). > > Most of the guys I work with use Schwab and like > it. What he said. Performance based fees are highly unusual. We use TD Ameritrade Institutional. Schwab and Fidelity are the other big two.
I am trying to use similar structure what Buffett has used in his early career (0 for first 6% and 25% above that + expenses). Some one told me that we cannot use performance fee for RIA. FYI - I am not indicating or suggesting that my performance will be close to Warren Buffett. mwvt9 - How did you make the switch to RIA? Was is it a tough decision? Do these support options - I need to buy out of call puts for hedging purposes and sometimes write covered calls to collect premium.
drk Wrote: ------------------------------------------------------- > I am trying to use similar structure what Buffett > has used in his early career (0 for first 6% and > 25% above that + expenses). Some one told me that > we cannot use performance fee for RIA. FYI - I am > not indicating or suggesting that my performance > will be close to Warren Buffett. > > mwvt9 - How did you make the switch to RIA? Was is > it a tough decision? > > Do these support options - I need to buy out of > call puts for hedging purposes and sometimes write > covered calls to collect premium. It wasn’t a tough decision for me because I had nothing to lose (read I wasn’t making any money anyway). This is not the case with you. You can get any investment you want inside of an RIA. Basically an RIA is just an entity that is compensated for giving investment advice - could be a wealth management firm, a separate account manager, financial advisor, whatever. Edit: mwvt99 at g mail dot com if you are serious about going further.
If/when you register with the SEC there’s a box to check on the ADV form if you plan to get paid based off performance. Essentially, it’s what the RIAs that run hedge funds do. So you can, but it’s unusual. Many RIAs are also financial planners. Their clients depend on them for all sorts of financial advice from estate planning to retiremenet services. They get their fees on total AUM for being a full service financial planner. If you just want to run a portfolio and don’t want to deal with the clients, then I would go the performance fee route. But know that you will get considerably less assets from your investors.
I remember on the 65 materials it forbid performance fees but I can’t remember what type of entity it was covering. Anyway, if you get your charter you will be exempt from the 65 (although it’s super easy). You will need WAAAAY more than 2 million aum to survive. I’d say like 6-10 is a minimum. Also, if you attract your clients based off past performance, don’t be surprised if they all vanish once you underperform (more so at the beginning rather than later on). You can google up some links about starting an RIA also.
Why are performance based fees unusual? I’d have thought 1-2% of AUM management fee and 20% of performance >6% sounds fairly reasonable. Without a performance based fee, I don’t see how you could make a living managing less than $2m.
I’d like to start a MENA or Emerging Markets fund, just dont have the cash yet.
Carson Wrote: ------------------------------------------------------- > Why are performance based fees unusual? I’d have > thought 1-2% of AUM management fee and 20% of > performance >6% sounds fairly reasonable. > > Without a performance based fee, I don’t see how > you could make a living managing less than $2m. It’s not unusual for a hedge fund. But RIAs aren’t hedge funds, though as I mentioned above, some do manage their own hedge fund in addition to other services they provide. Look at it this way, if you’re an RIA that provides a wide range of financial services to your clients you can attract a large (if not complete) portion of their wallet, and charge them 1-2% a year. If you just manage a hedge fund, then only the portion of your clients’ wallet that’s appropriate for that type of investment will go to you and you’ll only make money based on your own performance.
Starting and RIA with $1 - $2MM in AUM is suicide.