Starting an RIA with no AUM

Water Cooler Careers
#1

I’ve seen this topic posted a few times over the past couple of years and thought it might be worthwhile to rehash it. Has anyone here, starting at zero, started an RIA on their own? I’m looking at the viability of taking my credentials (CFA, CFP, CMT) and practical experience on the ops, investment, and sales side and hanging up my own shingle. Seems salaried life is a bit. . limiting. I already know most of the back office software to streamline and automate various processes. I know very little about compliance and legal stuff, including starting up. I need help with that.

Anyway, I know it takes insane tenacity, but I want to ping the board to see what challenges I’m missing.

Case facts:

Business: Financial planning (hourly fees) plus investment management (aum fee)

Target market: Millenials and Gen X

Startup and op costs: Looks like about 20k and then 20k per year

Financial buffer (since I’m taking my salary from six figure to zero): 3 years of living/operational expenses

Contacts in area: Few, will need to rely on family and friends initially to help offset negative cash flow

Time split target: 15% investments/ 10% admin/ 15% planning/ 60% business development.

3 year goal (15M AUM)

Obviously things need to be more detailed and thought out, but what challenges am I missing? Are there other resources to help create a lean, efficient practice besides RIAinabox and TD/Schwab? Is prospecting still cold calls, warm calls, getting involved in groups and clubs, networking, and knocking on doors?

I appreciate all feedback, including “you’re a moron”

#2

Starting an RIA is amazingly simple. Getting meaningful assets is amazing difficult.

You do you, but few tweaks I’d make:

Keep your fees simple. No hourly fees, at all. Your clients should be coming to you for all their financial planning needs and that should be covered in your wrap fee. Millenials don’t have any money and don’t like financial advisors. They will and they will, but not yet. Gen X is still a pretty tough market but we’re coming around.

You need contacts in your area. Setting up shop without a network in place (like a lawyer and accountant to give you referrals) is going to be really tough. Utilize a TAMP like Envestnet, ORION, or Oranj to help with back office support, client reporting, and use their model portfolios while you spend 99% of your time on bringing on new clients. Once you hit about $100mm in AUM, then you can do more on the investment side, if you want.

And, your 3-year goal is wildly low. You should have at least $50mm. Think about it like this: If you charge 1.00% (which is high for an RIA) you’ll generate $500k in revenue. Since you’re paying all the overhead out of your own pocket, you’re going to need that much to pay yourself. Plus, if you can’t raise $50mm in 3 years, you’re screwed.

#3

Sweep the leg, I always appreciate your candid responses. Familiar with Orion and Black Diamond - they are expensive but they do a lot of junk I don’t want to be doing.

Okay, so picking at your 50m number after three years - that’s a goal number to be making lots of money. The 15m is low, you’re right. I was going off of your typical UBS/ Morgan Stanley grid of “if your gross is under 150k after year three, you’re fired.” But yes, it’s low. What kind of overhead do you think there would be for a solo shop?

Finally, it seems your overall theme is “outsource as much as you can besides business development so you can spend all of your time on business develipment”. Oh, and target Boomers as well. Am I hearing your right?

Thanks again sweep, can always count on ya

#4

OP, have you considered joining an existing RIA as an Associate, get some practical experience (to supplement your credentials) for a few years and see where that takes you (i.e. start your own RIA, take over a portion of smaller clients from an existing advisor etc)?

If I were you, that’s what I would do. (And did 10 years ago).

#5

^What Mike79 says is definitely the way to go if you want to play the long game.

In response to your comments/questions: Just FYI, but Black Diamond, while providing terrific back office/reporting support, isn’t a TAMP so they won’t be able to provide you with investment solutions.

Believe me, getting to $50mm isn’t “making a lot of money.” You’re overhead isn’t going to be cheap, you’ll soon need to hire an admin, pay for back office support, and - of course - taxes will chop one of your legs out from under you. So $500k in total revenue really isn’t that ambitious of a goal. Getting to $500mm with a 3-5 person team is a nice sweet spot for making a good living and still being able to have a life, but that’s down the road a bit.

And, yeah, I’d highly recommend outsourcing your investments until you reach a scale where you can hire a biz development person (if you want to do mostly investments). Put it this way, would you rather spend 40 hours doing due diligence on large growth funds that may give you 30 bps of alpha - in one category out of 15 or whatever - or use those 40 hours prospecting and bringing in assets? I can tell you with absolute certainty, 100% of successful advisors spend their early years getting to scale. Can’t invest if you don’t have assets, right?

As far as what generation to go after, it’s hard to say. Yes, Boomers have all the money, for the time being. And, most of that money will pass to their wives since men generally die before women so you may want to think about partnering with a woman advisor. I believe it’s something like $4T is expected to transfer from men’s control to women’s over the next 20 years. OR, forget all that and go after the younger crowd. It’s all about finding the niche that’s right for you.

#6

Will PM you. I tried this fight and I lost.

#7

I own and operate an RIA in Pennsylvania. Where will you be located?