New RIA setup with little AUM

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matt1957's picture
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Joined: 2008-08-25

Getting ready to start an RIA with only six million in assets.  Having a hard time finding a place to custody and build with.  Anyone care to point me in a direction?  Have spoken to National, Fidelity, Schwab - but I'm just a guppy.

slimpickens's picture
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Joined: 2009-03-20

Try TRADEPM or something like that. They don't have a min... Why are you going RIA if you only have $6MIL?

Windknot's picture
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Joined: 2006-04-10

Matt, Check your inbox. 

Squash1's picture
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Joined: 2008-11-19

TradePMR is the name slim is looking for.. good group catering to everyone but helping a lot of smaller RIAs get started..

CALI123's picture
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Joined: 2009-01-30

If you are willing to grow, Rydex Financial Services is a good choice.

Mike Patton over at investment advisor dot com has had good luck with Trade PMR
I hear shareholder services is good also

Ash's picture
Ash
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Joined: 2009-03-18

matt1957 wrote:Getting ready to start an RIA with only six million in assets.  Having a hard time finding a place to custody and build with.  Anyone care to point me in a direction?  Have spoken to National, Fidelity, Schwab - but I'm just a guppy.You are correct about Schwab, Fidelity, Schwab.  But try TD or Scott Trade.  TD has a channel that deals with smaller advisors.  Scott Trade is getting into this business and gotten a long way in building all the tools: Trading, performance reports, etc.   The person to contact at Scott Trade Institutional is Brian Davis.  Sorry do not have his number handy.Good Luck.ashwww.FAfreedom.com - The Breakaway Experts609-945-7100 x 101

Morphius's picture
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Joined: 2007-07-21

Have you considered joining an established RIA instead? With your asset level that might be a good avenue to consider. Most of the bigger custodians you mentioned have at least an informal program to try and introduce existing RIAs looking to grow by adding advisors with people like yourself who are interested in the RIA model but might lack the scale to do it economically.

Morphius's picture
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Joined: 2007-07-21

ice,

I am told by a couple of contacts I have at Fidelity & Schwab that they (and I assume the other smaller custodians as well) have become much more 'selective' in recent months because they have been hit with a large wave of inquiries from prospective 'breakaway brokers' fleeing the wires in particular. It may not be right, but it's not all that surprising, that they respond by at least informally focusing more attention on those prospects that have more AUM and therefore more potential revenue for them. This will probably last as long as the current imbalance in the prospect pipeline remains.

I would encourage those considering a custodian friendly to smaller advisors to also include SSG (Shareholder Service Group) on their due diligence list. Started and run by two of the key guys that used to run what has become TDA today.

BiLo's picture
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Joined: 2009-03-18

Out of curiosity why would 6 million AUM be too small.  Isn't  that enough to start with?   I would think in this market in 5 years that would be 12 million plus you got to assume if your showing up and making somewhat of an effort you will have added another 12 million minimum which would give you 24 million in 5 years and if you charging 1% that's $240,000 minus expenses.
I'd take that all day long.
 
 

Squash1's picture
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Joined: 2008-11-19

BiLo wrote:
Out of curiosity why would 6 million AUM be too small.  Isn't  that enough to start with?   I would think in this market in 5 years that would be 12 million plus you got to assume if your showing up and making somewhat of an effort you will have added another 12 million minimum which would give you 24 million in 5 years and if you charging 1% that's $240,000 minus expenses.
I'd take that all day long.
 
 
 
I think assuming you can double your current assets in 5 years is a little high what is that a 14.4% return on current assets each year? If you are doing that, then I have $100K that I would like to invest..
 
I don't doubt you can add more assets in the coming years, but as a RIA, you have no second options(not a criticism, since I do fee based).. But how many people are going to want to pay that 1% every year in a bear market losing 15-45%/year.. but aside from that
 
$6mill @ 1%=$60K
$60K-12K(office)=48K
48k-2.4K(phone,internet fax)=45.6K
 
And that is assuming your assets continue to stay positive. Also doesn't consider office supplies, trades, RIA start up fees, etc (Billing system, BPS taken off the top from custodian, any kind of software, etc.. Don't know how this works with a RIA).
 
I have heard $20-30 MIL for a RIA.
 
Try indy build your assets then go..

BiLo's picture
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Joined: 2009-03-18

I don't think 14% for 5 years following a 50% down turn is too unrealistic, that's gets us to break even. 
 
I don't know much about the RIA or Indy but why Indy to start up and then go RIA? 
 
Thanks!

Squash1's picture
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Joined: 2008-11-19

Going indy you could build more assets and still build a fee business, also it would give you and idea in terms of expense(actual expenses not estimated) and having to deal with everything else(from owning a business aspect).. Also you could fall back on some commissionable products if you don't bring in enough assets(not that you won't).
 
And it terms of fee accounts it will give you a good idea on ticket charges(on an annual basis).
 
I think this rebound will not be the same... I hope it is but I am expecting it to take 8-10 years to get back..
 

BiLo's picture
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Joined: 2009-03-18

Squash, I hope you're wrong about this rebound and I'm right.  Too bad we don't have crystal balls.  This market requires brass ones.  Ha-ha.
 
What would you recommend on going Indy with a small AUM and trailing 100k, 2 years into the business?

Squash1's picture
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Joined: 2008-11-19

That's what I did.. spent 3 yrs at Jones, xferd $5MIL and built the rest..

BiLo's picture
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Joined: 2009-03-18

What B/D did you use?

Moraen's picture
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Joined: 2009-01-22

If you charge for other services, you can make it with $5mil, while you build your assets.

Squash1's picture
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Joined: 2008-11-19

iceco1d wrote:
Squash,
You left EDJ after 3 years, transferred $5MM, and went Indy...did I read that correctly?
 
Yeah I only xfered people who were willing to go feebased.. So right from the start I xfered $5 of the $20...
 
Eventually $6Mil more came... But in my first year I added an additional $5MIL in fee.. That's the key, xfer take who is willing to come, forget the rest(except for the occasional phone call just to see how bad EDJ is treating them) and find new $$

brandnewadvisor's picture
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Joined: 2007-03-23

$5 mil is fine for ria.  I went ria with about $9 mil in 2005.  You'll find getting new clients is way easier with a major custodian (try TD Ameritrade, low min and good reputation) as an ria.  It took me 3 years with a indy b/d to get the $9 mil - then added over $20 mil in the next 2 years.  The real key is not what you have right now, but what you'll do to grow.  ria will give you way more flexability to grow via marketing freedom and more variety of asset managment options.Also, do yourself a favor and don't charge 1%.  That's for pansies.  Set your fees at 2% with breakpoints so only your biggest clients will get down to 1%.  This way you can come out of the gates with $100k in revenue.If you know what you're doing there will be no problem with people paying you a % based fee every year - regardless of what the market is doing.  PM me if you need some further direction.Good luck - don't waste your time in indyville; it will just be a bigger pain in the a$$ when you have to dump them and transfer your book in 1 or 2 years.

CALI123's picture
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Joined: 2009-01-30

Good advice. I started my RIA with less than 10. Average fee in my area is 2%. I left alot of assets behind that wouldn't pay me as an RIA (b shares, money mkt accounts). But the 100% payout made up for most of the difference.
 
Google a few of your local RIAs. Then go over to the SEC website and look up the firm. Read through their adv II and see what the average fee is for your area.
 
There are lots of ways to control expenses. I used an executive suite to meet clients and worked out of my home office my first two years. I know guys who can afford a nice office space, but like to work from home so they are still using an exec suite.

matt1957's picture
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Joined: 2008-08-25

All - appreciate your thoughts and help.  Fred at TradePMR was helpful.  Firm has a new fee based platform that I've been putting people in, and then the mothership gives me grief because I'm not banging out GDC.  1st year in and have 8 mil in assets - 401ks, some fee based, and run of the mill brokerage.
 
Looking at pure RIA in terms of flexibility long term.  I own commercial office space, so rent is free.  Just need to look at the numbers and build a business plan - then decide how and when to pull the trigger.

BiLo's picture
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Joined: 2009-03-18

Great stuff and both the RIA route and Indy look good.  I don't see too many negatives going Indy especially if you combine both advisory fees and commissions.
 
As far as RIA goes do you bill monthly for cash flow?  Do you charge the client ticket charges?
 
Thanks this thread has been very helpful.

Moraen's picture
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Joined: 2009-01-22

Ice is quite right.  You can technically do commission business, but you will have to be registered with a B/D to do so.  For instance, if you wanted to do commission business through Brokers Xpress, you could, but that would have to be disclosed on your ADV.
 
Also, you would have to disclose any insurance business.  Your insurance business would run separately from your RIA business.
 

BiLo's picture
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Joined: 2009-03-18

So I could charge commissioins if I was with a registered B/D.  Now could I do commission trades for people that didn't want to pay advisory fees and have people that wanted to do that have an advisory account?  I would definitley want to do insurance as it is an important piece of the financial puzzle.
 
So, could I do commissionable trades, advisory fees for some clients, and insurance on in the same company?
 
Thank You.

Ash's picture
Ash
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Joined: 2009-03-18

BiLo wrote:So I could charge commissioins if I was with a registered B/D.  Now could I do commission trades for people that didn't want to pay advisory fees and have people that wanted to do that have an advisory account?  I would definitley want to do insurance as it is an important piece of the financial puzzle.
 
So, could I do commissionable trades, advisory fees for some clients, and insurance on in the same company?
 
Thank You.Here are three real cases that might help this conversation.  In each case the advisor dropped their BD and opened RIA only shop.1.  Advisor decided to include trading fees as a part of their client fees.  He was a stock picker and was not concerned with the conflict of managing trades. 2.  Advisor decided to include the trading fees as a part of their client fees for his old clients and for his new clients decided to charge the client seperatly for trading.  He did not want to create a pricing issue for his old clients that were moving.3.  Advisor added trading fees to his advisory fees.  He chaged the normal fees he was charging at the wirehouse and then added trading fees.  He was confident that his clients would not mind paying.  He was correct, 95% of his clinets moved with him.  I refered all three advisors to the same attorney to write the client services agreeement, so I know there were no legal issues.  In a perfect situation, I would agree that the trading costs should be seperated.  As far a commision trades... the only way to can charge a comission on a trade is to be affiliated with a BD.  In an RIA you can charge a "consulting fee" or a "flat fee" for your advise on a trade, but it is not a comission.  All of the advisors above have a consulting fee clause in their ADV and Client Agreement.  I should also add that their consulting fee is minimal when compared to their advisory fee.  If there consulting fees became large, I am sure the regulators may have some concern.  Hope this helps.ashwww.FAfreedom.com - The Breakaway Experts609-945-7100 x 101

B24's picture
B24
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Joined: 2008-07-08

brandnewadvisor wrote:$5 mil is fine for ria.  I went ria with about $9 mil in 2005.  You'll find getting new clients is way easier with a major custodian (try TD Ameritrade, low min and good reputation) as an ria.  It took me 3 years with a indy b/d to get the $9 mil - then added over $20 mil in the next 2 years.  The real key is not what you have right now, but what you'll do to grow.  ria will give you way more flexability to grow via marketing freedom and more variety of asset managment options.Also, do yourself a favor and don't charge 1%.  That's for pansies.  Set your fees at 2% with breakpoints so only your biggest clients will get down to 1%.  This way you can come out of the gates with $100k in revenue.If you know what you're doing there will be no problem with people paying you a % based fee every year - regardless of what the market is doing.  PM me if you need some further direction.Good luck - don't waste your time in indyville; it will just be a bigger pain in the a$$ when you have to dump them and transfer your book in 1 or 2 years.
Just a question for people that are RIA only; how do you handle the client that really needs some of their income guaranteed (i.e. annuities)?  Let's say someone comes with $1m, and you need to ensure some income, are you just putting all into a fee platform, or are you doing something else?  I don't even kow if you can do annuities in an RIA platform.
Thanks.

Moraen's picture
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Joined: 2009-01-22

B24 - no load annuities - no surrender, extremely low expenses, good funds. You can set up your fee in several ways - they can pay you, they can pay you out of another account they have, or if they are taking distributions from the annuity, they can send some of that to you.

Ash's picture
Ash
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Joined: 2009-03-18

B24 wrote:
Just a question for people that are RIA only; how do you handle the client that really needs some of their income guaranteed (i.e. annuities)?  Let's say someone comes with $1m, and you need to ensure some income, are you just putting all into a fee platform, or are you doing something else?  I don't even kow if you can do annuities in an RIA platform.
Thanks.Here is an article that may help you.http://registeredrep.com/mag/finance_variable_annuity_providers_0501/index.htmlashwww.FAfreedom.com - The Breakaway Experts609-945-7100 x 101

B24's picture
B24
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Moraen wrote:B24 - no load annuities - no surrender, extremely low expenses, good funds. You can set up your fee in several ways - they can pay you, they can pay you out of another account they have, or if they are taking distributions from the annuity, they can send some of that to you.
 
Thanks.

FVDA_Trade-PMR's picture
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Joined: 2008-09-24

Good Morning All,
 
I saw my name and Trade-PMR mentioned a few times on this forum.  Thank you all very much.  Indeed, we are proud to work with startup RIAs or emerging advisory firms.  Over the years we've seen so many firms get started from ground zero who today are doing quite well and have grown their AUM by leaps and bounds.  It's a story I have so often seen repeated helping Advisors believe in their dreams and help execute their business plans.  I'm always honored for the role I play in this process.

kidchico's picture
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Joined: 2008-09-08

Can you still setup retirement plans as an RIA? That is where I will be focusing heavily over the next few years. 

Morphius's picture
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Joined: 2007-07-21

I have a feeling I'm going to regret even asking this, but ... what exactly do you mean by "setup retirement plans?" And how long have you been doing this?

troll's picture
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Joined: 2004-11-29

I'm gonna laugh my ass off when FINRA gets their claws into regulating the RIA's. 

AdvisorControl.com's picture
Joined: 2009-05-29

Alice Cooper wrote:I'm gonna laugh my ass off when FINRA gets their claws into regulating the RIA's. 
Why?  SEC is no walk in the park.  Regardless of regulator, the crooks seem to always eventually get caught.

Morphius's picture
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Joined: 2007-07-21

Alice Cooper wrote: I'm gonna laugh my ass off when FINRA gets their claws into regulating the RIA's. 

What exactly is your point with that comment, Alice? That misery loves company? FINRA or some federal group will get their claws into national regulation of the insurance industry first. You should get a good laugh out of that too.

Besides, obviously this kid chico has nothing to do with the RIA world, so he's probably already a RR regulated by FINRA. I guess not even regulators can regulate away all inexperience or ignorance.

B24's picture
B24
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Joined: 2008-07-08

Alice Cooper wrote:I'm gonna laugh my ass off when FINRA gets their claws into regulating the RIA's. 
 
I'm gonna laugh my ass off when FINRA starts regulating EIA's.

anonymous's picture
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Joined: 2005-09-29

B24 wrote:Alice Cooper wrote:I'm gonna laugh my ass off when FINRA gets their claws into regulating the RIA's. 
 
I'm gonna laugh my ass off when FINRA starts regulating EIA's.

 
I hope that neither of these things ever comes to be.

CALI123's picture
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Joined: 2009-01-30

hopefully nothing. Remeber a few years back when they went crazy about how research needed to be outsourced. Everyone said it would be the death of internal reseach at the wirehouses. I don't think anything has changed other than an added disclaimer or two.

mwilson's picture
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Joined: 2009-07-06

Matt,I know that you are looking for a custodian, but when it comes time to check out Performance Reporting Systems, Research and Investment Planning, Client Web portals and Document Vaults, you should check out Morningstar Office. Our All-in-one solution was made for RIAs who want to consolidate their software and streamline their practices.Morningstar is planning to hold a free webinar this Thursday. You should check it out:https://www118.livemeeting.com/lrs/morningst_ccc/Registration.aspx?pageName=1581nzr17ztwxbhpIf you can't make the webinar, which will highlight why newer RIAs are choosing Morningstar Office, you can either click here http://global.morningstar.com/office or give us a call at +1 800 886-1749.Best of Luck!-Morningstar

kidchico's picture
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Joined: 2008-09-08

By setting up a retirement plan, I mean setting up 401(k), SEP, SIMPLE, and other types of plans. I believe I have already figured out the answer to this. My biggest concern related to how I would be compensated.I've been in this business for about a year now.

Moraen's picture
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Joined: 2009-01-22

Morphius wrote: I have a feeling I'm going to regret even asking this, but ... what exactly do you mean by "setup retirement plans?" And how long have you been doing this?

Morph - I think he means "company sponsored retirement plans".

Yes, you can "set them up", but you do not take a commission off of the sale of the plan. You can set yourself up to take a fee like a commission, but it won't be the same.

We focus on more of a consultative role. Charge a fee commensurate with the amount of work you will do. Some plan sponsors like this, others do not.

There is legislation focusing on the flat fee arrangement for RIA's. We'll see if it passes.

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