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  • Writer's pictureRichard DeSalvo

The Great Divide

From Advisor to Business Owner

In recent years, as more and more advisors look to have greater control over their business, RIA firms have been forming at a record pace and show no signs of slowing down. According to Schwab Advisor Services, new registrations have increased by 20% year-over-year and grew by nearly 60% over the last five years, from 150 new firms in 2013 to 238 new firms in 2017. [1]

While exciting, running an RIA is not an easy task. There are two key challenges that a new business owner must accept and master:

Regulatory Risk

It is your responsibility to follow the rules set by the SEC and FINRA. Being 90% right is 100% wrong in the eyes of any regulatory body. You can outsource a large portion of the work and oversight (e.g. e-mail surveillance, disclosures, books, and records), but you are ultimately accountable for the outcome. It is vital that you have written policies and procedures, follow them, and avoid crippling regulatory fines that could shut down your business. Before you owned an RIA, regulatory concerns were someone else’s problem, you just focused on clients and prospects. Now, the responsibility is yours and it’s imperative that you get it right.

Business Risk

One of the biggest difficulties you will face when transitioning from an advisor to an RIA owner is making the short and long-term decisions required to run your business, many of which you may have never considered before. What client portal software and CRM systems will you use? Who will you hire, what salary will you pay them, and how will you measure their performance? What type of office space should you lease? Per your ADV, will you share revenue and how will you avoid inherent conflicts?

These decisions, along with so many others, will impact your margins, markup on product suite, and middle/back-office technology. You will be forced to adopt a new way of thinking and learn new skills that you likely have not developed as an advisor. Although you haven’t had to consider these decisions before, you cannot afford to be wrong.

Although these are the two main concerns for a new RIA owner, new challenges will continue to present themselves daily. These will range from out-of-pocket costs and pro-forma analysis to non-competes/non-solicits and client asset transfers. Most of your time will be committed to running a regulatory business and your day will be consumed by administrative tasks rather than prospecting and client calls. Furthermore, if you take an active role in asset/investment management, you won’t have enough time in the day to give clients the attention they need and deserve.

This is more of a career change than you may realize and success as an advisor does not necessarily translate into success as a business owner. Ownership requires a skill set that needs to be learned, like any other. New business owners can easily underestimate the size and scope of such an undertaking and try to do everything themselves. The key is to allow yourself to be a student of the RIA business and invite those with more experience to be your teachers. Get comfortable with the idea that you will make mistakes, rededicate yourself to a new aspect of the business, and use the skills that made you successful advisor to develop into the leader your firm needs. Ask for help before it’s too late.

Rich DeSalvo

CEO and Founder

f3Logic, LLC

Where Fiduciary Freedom is First

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Advisory services are offered through f3Logic, LLC, a registered investment advisor.

[1] Schoeff, M. (2018, October 3). Schwab report shows strong growth of SEC-regulated advisers. Retrieved from Investment News:


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