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Also available as podcast (Episode #146)
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How long does it take to register an RIA?
TL;DR – The overall process of exploring and reaching the point of transitioning your practice to the RIA model typically takes 6-9 months of preparation. If part of that process involves registering your own RIA (as opposed to joining an existing RIA), the registration process of the RIA typically takes 45-90 days within the overall timeline. There are numerous variables that could cause the registration time needed to be longer, but it is typically not possible to register an RIA in a shorter period of time.
Host:
Brad Wales founded Transition To RIA in 2020 after nearly 20 years of prior industry experience, including direct RIA related roles in Compliance, Finance and Business Development. He has an MBA and has held the 4, 7, 24, 63 & 65 licenses. He has been quoted or featured in 100+ industry articles including in the Wall Street Journal, Barron’s, and most every other major industry publication. He is well known for his RIA video explanatory series, and Kitces named his podcast as a “Top Podcast for Financial Advisors.”
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Full Transcription Of Video:
How long does it take to register an RIA? That is today’s question on the Transition To RIA question and answer series. It is episode #146.
Hi, I’m Brad Wales with Transition To RIA where we help you understand everything there is to know about why and how to transition your practice to the RIA model.
If you’re not already there, head to TransitionToRIA.com where you’ll find this entire series in video format, podcast format. There are articles, there are whitepapers. There’s a Vendor Profile Series. All kinds of things to help you better understand the model.
Again, TransitionToRIA.com.
On today’s episode we’re going to talk about how long does it take to register an RIA.
I want to give a little preface to that and then we’ll walk through the logistics and the timeline you should expect with that process.
As a reminder, and it’s something I’ve talked about on episodes like this before, before you even get to worrying about how long would it take me to register an RIA, you first need to make sure that that is the right path for you.
As a quick reminder, again, those of you that have watched me or listened to many of my episodes will know this, there are two precursors before you get to that point.
First, should you even be going down this path? Is the RIA model right for your practice? Whatever you hope to achieve by transitioning to the RIA model, is that going to come to fruition? Are you correct about your assumptions of how it will work and how it will impact your economics and the flexibility you’ll have?
You need to understand how that works. That’s a big part of what I do is say…. What kind of model are you in now? What kind of firm are you at now? What would this RIA path potentially bring to you and is that a fit to be exploring?
Second, it’s important to understand there are three main pathways into the model.
On one end of the spectrum, which is what we’re going to be talking about on today’s episode, is where you start your own RIA and build out the necessary solution providers around it.
On the other end of the spectrum, you potentially might join an RIA. There are all different flavors about what that entails.
Then there is a third option that’s a bit between those two, oftentimes called a supported independence type approach.
But the idea being it’s important to understand what those three pathways are. They all have pros and cons. Some advisors will find one path appealing, and seemingly similar size tenured advisors might choose the exact opposite path.
So don’t go into this with some assumption that you’re only going to do it one way. You want to educate yourself on how all these pathways work and conclude which one is best for you.
If you have done those two macro steps, and if you have concluded that starting your own RIA is the right path to take, then then that leads us to today’s question.
Again, how long does that process take?
What I’m referring to is registering an RIA.
Keep in mind what an RIA is. I’ll hear advisors that are already in the RIA model and they’ll either verbally or on their website or wherever, they’ll say… “I am an RIA”, talking in first person.
I get what they are trying to say, but that’s not the factually correct way to be describing it. That would be like saying… “I am a McDonald’s.” No, you might own a McDonald’s, you might run a McDonald’s, but you the individual are not a McDonald’s.
That is the same thing with an RIA, a Registered Investment Advisor. The RIA is the entity that is established. The advisors, yourself being one of them, is an IAR, Investment Advisor Representative of the RIA.
Now, you wouldn’t likely use the IAR term with your clients, as most aren’t aware of the jargon. But just to clarify, it’s also not factually correct to call yourself an RIA.
The process of registering an RIA is creating the legal structure, the legal entity, so that once that is established, the advisors underneath it can register with that RIA to then provide the advisory services to that RIA’s clients, that financial advisor’s clients.
So, just keep that in mind of what we’re talking about. Registering the entity.
As far as the timeline and steps involved in that, a couple things.
Keep in mind, registering the RIA is just one of many variables that you’re going to be working on, usually simultaneously. So when we’re talking about, well, how long does it take to register the RIA, and which we’re going to answer, keep in mind that’s just one of about a dozen things you potentially need to be working through.
A lot of those are being done in parallel. Some are more prioritized towards the front end and others can wait towards later in the transition process. But there’s multiple variables to be working through. And just because registering the RIA takes X number of days, which we’re going to get into, keep in mind that assumes you have the capacity to perhaps work through it at that pace because you’re also working on other things as well.
Not to mention, of course, you still have your, as I say, proverbial day job as a financial advisor, working with your clients and your team members and everything. So there’s a lot of moving parts.
I don’t say all that to intimidate you by any means. That’s a big part of what I help you do is understand what those parts are, understand the priority you should be managing through them, help you through it all. So you do not need to be intimidated by it. But it’s fair for me to point out there are multiple steps. Registering the RIA is just one of those steps.
The first thing to kick the process off of registering an RIA is to identify and hire a compliance consulting firm.
Now, there’s no regulation out there that says you must hire someone to help you get the RIA registered. In theory, you could try to go online – the system’s called the IARD system – and attempt to create your own ADV, part one and part two, and know how to do the filing.
You would be crazy though to attempt to do it on your own.
There’s no reason for you to try to do it on your own. If you’re not willing and able to pay a compliance consulting firm to do this, you probably shouldn’t be making the transition. This is just the type of thing you cannot afford to do incorrectly. You cannot afford to screw it up.
You’ll likely only register one RIA in your life, so you’re never going to get good at it. So you engage, typically referred to as compliance consulting firms to help you with that process.
So the first step in registering an RIA is to answer the question, how long does this take to identify and hire a compliance consulting firm?
This is a good thing for our industry, but it also creates a challenge because you need to sort through it, but there are quite a few compliance consulting firms that help with registering RIAs.
It depends on your particular circumstances. Some will be a fit and others won’t be a fit. Maybe your situation’s fairly simple and you don’t need the super high-end, super expensive version. The more mid-tier range will accomplish all that you need.
So, again, step one in that process is knowing that you need to hire a compliance consulting firm, knowing who the players are, knowing which ones might be a fit for you, doing some due diligence, talking to a couple of them, etc.
Again, I can help you with all that, get all that figured out. But that process alone, again, when we’re factoring time, can take some time.
Now, if you come to me and you say… “Brad, with all your experience, here’s everything about my practice, ask as many questions as you want, Brad, just pick one for me.” With my experience, I’m confident I can do that and would do that well for you.
But generally, this is usually going to be a vendor that you’re working with for a very long time, because they don’t just help you with the upfront registration, you generally always engage that same compliance consulting firm on an ongoing basis to help you maintain the RIA and manage your compliance responsibilities going forward.
So that is a big decision to pick that vendor. You’re not marrying that vendor for the balance of your career. You could change them down the line, though that is a bit disruptive. So to the degree you can avoid that, just picking the right one on the front end is better. And so that generally does take some time.
After you’ve engaged and hired a compliance consulting firm, there are now two steps that are going to occur after that.
First, the compliance consulting firm needs to learn about you, your practice, your clients, how you plan to invest. Which perhaps might be different from how you’ve historically done it, the kinds of services you plan to offer, how you plan to charge your clients for your services.
Part of the beauty of going down an RIA path is you get a bit of a blank slate. Just because you’ve done it one way in the past, which oftentimes is because that’s how whatever firm you’re at now requires you to maybe only do things a certain way, you generally always have more flexibility on an RIA path. The value prop you want your firm to have. The services you’re going to provide. How you price it. All those sorts of things.
And so the first thing the compliance consulting firm needs to do is to get that information from you. That typically involves a questionnaire that they send you that goes over many of these variables involved.
After they get that back from you they then start drafting up, among other things, the ADV sections part one, and part two. That takes a little time on their part as well.
Then they get a draft or two of that ready and then that goes back to you. You’re reviewing it, you’re jumping on phone calls with them, talking it through. That back and forth takes a little time.
Now, if there was ever an emergency rush situation – which is not ideal, but sometimes there are circumstances where these things need to be attempted to do as quickly as possible – the compliance consultant can attempt to do this back and forth as quickly as possible.
But under a more normal situation, it typically takes several weeks even just at a reasonable pace to go back and forth. And again, a lot of that’s dictated by your ability and your team’s ability to fill out and respond to the questionnaire, and the follow-up conversations.
So, the first step is this back and forth part.
That will get everything up until the point where the compliance consulting firm says… We’ve done all of our part here. Now we are ready to send it off to the regulator.
And this is all mapped out. This is all choreographed to coincide with when your projected launch target is. They don’t just willy-nilly send it off. This would have been thought through in the context of… when are you desiring to go live with your new firm? And so, let’s map out when we would be sending it off to them.
But when that point comes, they then send it off to either the SEC or state.
As to whether you would be SEC or state primarily comes down to the size of your firm. There are a couple other unique circumstances that could decide it as well. But generally if you have a hundred million or more in client AUM you would be SEC, and below that you are generally state.
And so when they send it off to the SEC or state, then it’s out of the compliance consulting firm’s hands. It’s out of your hands. You are now, for lack of a better term, at the mercy of the regulator to turn that around and provide that back for you.
And the idea is, you’ve mapped this out for when it comes back. Sometimes it comes back and there are additional questions that are being asked. But the idea is you’ve choreographed all the other variables you’re working through as well, so that when the RIA goes live, at that point you typically resign shortly thereafter and launch your new firm.
So again, you map all this out. It’s all choreographed.
So altogether, I usually tell folks regarding how long it takes to register an RIA – which again, I define that as starting when you actually hire the compliance consulting firm, so again, there’s time you’ve already had to expend just to get to that point, but by the time you’re hiring them, I typically say 45 to 90 days is what it takes from there.
The reason for the range is because of those two parts. That first part of going back and forth with the compliance consulting firm, it matters how quickly you do your part. It matters how quickly they do their part. And again, you have some degree of control over if we needed to try to move this along quickly, that you can try to pull late nights or whatever and get a lot of that done.
But then that second part where it gets sent off, again, you’re at the mercy of the regular.
If you are going to be SEC registered, from when the compliance consulting firm sends it off to the SEC, they are statutorily required to respond within 45 days. But almost like clockwork for several years now – it’s always possible it could change in the future – but almost like clockwork in every instance, unless there are some hiccup that occurs, they respond at the 30-day mark.
So, you would have mapped it out. Your compliance consulting firm would say… if you want to launch the new firm 30 days out from now, now is the time we’re going to send it off because we can generally anticipate it coming back from the SEC 30 days out.
I don’t want say clockwork, it’s probably too strong because there could be variances, but 30 days is pretty dialed in most of the time.
If you are state registered, unfortunately, there’s much more variability with that. Every state has different turnaround times. They’re generally not shorter than the SEC. You can generally expect at least 30 days. Unfortunately, I have heard of some states that sometimes take months to get their part done.
And so the part of this process is if you’re going to be state registered, is to ask the compliance consulting firm you’ve hired what they typically experience with turnaround times with the state you’ll be registering in.
And again, unfortunately, it’s all over the place, so it would be very specific to your situation.
But hopefully this has helped you realize everything that goes into just getting to this point where we’re talking about registering an RIA. The steps involved, the things that could either speed this up or slow this down. And hopefully you’re realizing again that there’s certain blocks of time here that cannot be decreased even if you want them to be.
You cannot come to me and say… “Brad, let’s pull all nighter, tell me everything I need to know so I can launch an RIA in ten days from now.”
That’s not going to happen. With the stuff we can control, we can try to do that as quick as possible. But the regulator review part is out of our control. There’s no way to speed that up. And again, it’s typically at least 30 days. And possibly 30, 60, maybe 90 days depending on your circumstances.
The final point I’ll make is regarding an overall time perspective, just to give you an idea beyond just registering the RIA.
Typically when an advisor or team is first reaching out to me to have a conversation, they’ve at least kind of thought about the RIA model. They’ve maybe watched some of my videos, listened to my podcast. To use a baseball analogy, we’ll say they’re in the first or second inning.
From the time they reach out to me and by the time I walk them through the steps involved, again, from let’s make sure this is even something you should be exploring, let’s understand all the pathways into it, and then depending on which pathway you’ve chosen, here are all the variables and pieces you need to solve for. That typically takes six to nine months at a good measured pace.
It can be done significantly quicker than that, particularly if you’re maybe joining an RIA as opposed to registering a new RIA. That can really reduce the time.
And then there are other circumstances where sometimes these things do get stretched out several years, and that could be due to professional or personal reasons.
But if there’s no artificial thing slowing things down or there’s not a reason to delay it, typically for what it’s worth, if you’re curious, if someone first reached out to me to when they’re actually making the change, going live with it, it is typically six to nine months just to give you a little perspective.
So with that, like I said, my name is Brad Wales with Transition To RIA. This is the sort of thing I help advisors with all day long. Should you even be going down this path? Does it make sense for you? What are the different ways you could do it? And then how do each of these steps work? What kind of vendors might you rely on? How do you pick one vendor over the other? How much time is going to be involved in this? What are the costs involved in all this?
You don’t need to be intimidated by any of this. This is what I help you through. I walk you through, depending on which path we conclude is best for you, and let’s put all the pieces in place. This is a methodical process that has been massaged over many years and decades so you’re not charting new territory here.
It’s what are the best practices of how best to do this? And let’s navigate those steps and walk you through it. I’m happy to have that conversation with you as well.
First things first though, head on over to TransitionToRIA.com where as I said, you’ll find this entire series in video format, podcast format. There are articles, there are whitepapers. There’s a Vendor Profile Series.
At the top of every page is a Contact link. Click on that and you can instantly and easily schedule time to have a one-on-one conversation with me. Whether you want to talk about today’s topic or anything else RIA related, I’m happy to have that conversation with you.
Again, TransitionToRIA.com.
With that, I hope you found value in today’s episode and I’ll see you on the next one.
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