The first step in opening a new business is to set “the number.” We’re talking about the amount of money you need to survive each month. How much does it take to pay the bills, including your salary? What’s your number? In this post, we’ll help you understand some of the most common costs of starting and running an RIA to help you plan for your new business.

Average Startup Costs

Some sources claim that the average cost to start an RIA is around $10,000. That may cover the basics, but it may not come close to what your actual costs will be. Rather than relying on industry averages, it’s important to understand the costs associated with your unique business. Don’t quit your day job until you’ve done the following:

Create a Business Plan

You can do this on your own if you like, but we wouldn’t recommend it. Banks and credit unions are reluctant to loan to service providers, because there’s no real collateral. A solid business plan could be the difference between approval and denial. The cost to get a business plan professionally is roughly $1000.

Estimated Cost: $1000

Form a Limited Liability Corporation (LLC)

You can also go with an S-Corp here if you prefer. The main reason for incorporating is to protect yourself from personal liability, so either option is good. If you use an online service, this step will cost you between $200 and $600, depending on which state you’re forming your RIA in.

Estimated Cost: $500

Find Your Niche & Test It

This is an often overlooked step that is a common cause of first-year failures. You may believe that your niche idea will work, but have you tested it? The easiest way to do this is through social media. Set up a Facebook business page and a LinkedIn profile for the new concept. Use Facebook boost and LinkedIn Ads Manager to target your niche audience and measure the response. This is a standard lean start-up technique. The goal is not to spend a lot of money but to simply test the waters of your niche, so to speak. Investing around $500 should help you get the information you need to assess the validity of your niche.

Estimated Cost: $500

Build a Website

These steps are in order. Don’t build a website until your niche market has been tested and results are favorable. A visually stunning, functional website is absolutely essential, so it is important to work with a professional to get the job done right. Website costs can vary depending on the complexity and functionality you require. The minimum you should expect to pay for a simple website is $1,000.

Estimated Cost: Starting at $1000

Build a Technology Stack

You won’t likely be prospecting for senior citizens, so you need tech that will attract millennials and Gen-X clients. Those folks want an online experience. The monthly subscription cost for a CRM, client portal, and online performance reporting software starts at about $500 per month, and this cost will scale up as you grow your client base. You’ll also need a decent laptop and some accounting software. Budget subscription costs for three months and $1000 for the laptop.

Estimated Cost: $3000

Find a Compliance Consultant

This is an area you want to pay particular attention to. Filing your registrations and staying compliant with state, SEC, and FINRA regulations is a full-time job. You do not have the time to do it yourself, nor should you. There are professional compliance firms out there that can help you with this. Find the right team and view the money you pay them as a “peace of mind” investment.

Estimated Cost: $4000

File your RIA Registration (and IAR Fees)

The average state registration fee for a new RIA is $215. Additional reps (IARs) will cost under $100 apiece annually if your state requires them to register. Some compliance firms include these fees in their charges, so this step may not cost you anything extra. We’ve included it here for informational purposes. The estimate below is calculated for a one-person firm.

Estimated Cost: $215

E&O Insurance & Surety Bond

Invest in a professional liability insurance policy, also known as “Errors and Omissions” coverage. This policy, which costs around $1800 a year, will protect you if you make a mistake. Some states may also require a surety bond.

Estimated Cost: $2000

Owner’s Draw

Remember that question about your number? Unless you’re bringing clients over from a previous firm, you’re about to start a business with a monthly income of zero. You could live off your savings for a while, but what if the business fails? The upfront costs outlined above add up to just north of $12,000. We recommend depositing another $10,000 into an “owners draw” account.

Estimated Cost: $10,000

Advertising & Marketing

You should have come up with a marketing strategy when you created your business plan in Step 1. Round your RIA startup costs up to $25K by putting aside an additional $3000 to cover advertising, networking, and client entertainment costs. You’re now ready to launch your firm.

Estimated Cost: $3000

Good Life Companies Can Help You Launch Your Business

Good Life Companies provides a full range of services to help establish, support, and grow independent financial advisor practices. From creating a business plan to marketing, compliance, practice management, and more, we provide everything you need to manage your business efficiently while keeping costs as low as possible. Get in touch today to learn more.