Dual Registration

or Register to post new content in the forum

15 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Aug 22, 2008 2:10 am

How many of you are indy with a BD and also an RIA? Any special requirements to do this? Are you using custodians other than the BD you use for your indy work?

Aug 22, 2008 10:43 am

A complete response is beyond the scope of a forum post, so you'll need to do some research on your own (google dual registered or hybrid RIA, and check out the Schwab and Fidelity Institutional websites), but briefly dual registration is fairly common in the RIA world - the figures I've seen put it at about 1/3 of all RIAs are dually registered.

Some use the same firm as both b/d and custodian (these would be the RJs and LPLs of the world), while most have a custodian for their RIA advisory business and a separate independent b/d for their commission business.  They do not have to be the same.  You just need to find a fee-friendly b/d who understands and will work with dual registered firms.  Not all do/will.

The special requirements part will become more clear with your research, but essentially you will need to be aware of, and in compliance with, both FINRA (for your commission business) AND SEC/state regulations (for advisory business). 

Aug 22, 2008 11:39 am

If you are with a B/D, you need to see what they will allow.  There is a good chance that you will have to change your B/D.

Aug 22, 2008 5:00 pm

http://www.ria-compliance-consultants.com/








Should answer a lot of questions.
Oct 8, 2008 8:59 pm

To add to the thread, should one buy an existing RIA or start it from the ground up?

Oct 8, 2008 9:34 pm

Build your own. You won't have the debt, the constrained cash flow, or the unpredictability of buying something you didn't create.



We built ours, and don't have a dime of debt. The equity in our practice is our own, and the firm was created the way we wanted things.



Good luck.



C

Oct 8, 2008 10:52 pm
NaturaLogarithm:

To add to the thread, should one buy an existing RIA or start it from the ground up?


Agree with Captain.  And with Ice about Captain. 

In addition, you assume way too much if you assume buying an established practice is easy or something that you can plan on. 

Oct 9, 2008 12:02 am

That makes sense.  So what if it is a shell RIA?  As in no clients, no debt, just registered with a few states and all paperwork in place.

Oct 9, 2008 8:21 am
NaturaLogarithm:

That makes sense.  So what if it is a shell RIA?  As in no clients, no debt, just registered with a few states and all paperwork in place.


You're chasing rainbows. 

First, while buying a so-called "shell" company (any type of company) may save you a few bucks in legal entity formation, it wouldn't be much and would likely be more than offset by the time and hassle involved.

Second, the idea of a "shell RIA" is even less likely from a registration standpoint (as distinct from the formation of the legal entity), because the SEC - and I assume most if not all states - require an RIA's registration to be active and up to date.  If they cease operating, they are required to file an ADV amendment withdrawing formally from registration.  Otherwise they remain subject to all regulatory oversight and liability while not being able to be in  compliance with their own ADV.  So the idea of a shell RIA is not a good one.

Third, even if you did happen to find such a firm in the short window before filing for withdrawal, there is virtually no chance that you would be operate the same and therefore being able to simply adopt or use their ADV.  You would have to start from scratch on that and your operating procedures, and that is the main expense, not the actual registration filing fees.

I could go on but the point is simple:  don't waste time trying to find some magical shortcut to potentially save a few bucks.  It's not worth your time and effort.  Penny wise and pound foolish.

Stop chasing rainbows.  If you're going to go independent, do it properly.  If you're not willing to do that, don't bother going independent.



Oct 9, 2008 4:14 pm

Thanks for the note... I've been away for a while, and just thought I would chime in.


 
I'll be around now that sailing season is ka-put... time for the lakes to freeze over.
 
C
Oct 9, 2008 9:32 pm

Based on my experience, it appears most broker-dealers are becoming a bit more restrictive in terms of supporting the Hybrid Advisor.  Will they #1, allow the Advisor to operate his/her own RIA, #2, allow the Advisor's RIA to contract with a custodian firm, #3, will they charge a premium (i.e. haicut) for this flexibility and if so, how much and is it worth it?  Besides payout, the broker-dealer may also charge certain admin fees on fee assets as well (5, 10, 15 bps, etc., etc.).  It's important to do your due diligence thoroughly and to obtain these answers in writing before any formal commitments are made.


Furthermore, if they do allow it, how supportive will the B/D be?  Will certain B/D programs not be available because the rep is doing business on a less profitable platform?  I would recommend each prospective Rep confirm with the prospective B/D that yes, each program touted by the B/D in their marketing brochures is available fully even if the Rep chooses to do his fee business with an outside platform.  Get everything in writing would be my best advice on this subject.
Oct 10, 2008 6:50 am

Be prepared if you go the dually registered route to punt the B/D at some point.  What the B/D tells you is Kosher with them today, may not be Kosher tomorrow. 

Oct 10, 2008 8:59 pm

Great thread and lots of great info. I've found a few sites that allow you to buy or sell a book but not an RIA specifically. I noted one article I found where they said you may find some deals where you can do a back-end cash out to buy it. Basically you pay the prior party a percentage of the book over a number of years. This way client attrition ends up being factored into the price you eventually pay at the end of the cash-out period. The other benefit is that it keeps the former advisor or RIA interested in ensuring a smooth transition and low attrition. Most of the book buy/sell sites don't seem to mention this method and I'm sure it isn't always popular for the advisor/rep trying to get out.

Oct 11, 2008 9:16 am

I've certainly seen that info, too, summwatt.  It's interesting to read.

Just a note, though, that one shouldn't make the mistake of presuming that the existence of these sites means it is relatively easy for just about anyone to successfully buy a book or established business.  On the contrary, for every good seller, there are many, many would-be buyers.  This may change over time of course (especially as more of us start looking to retire ourselves), but for now potential buyers should be aware that the existence of these sites should not lead you to assume these opportunities are readily and generally available to anyone with money.   I wish it were so. 

Dec 10, 2008 10:41 pm

I am / own an RIA at which I am an IAR, but I am also an RR at my BD, who makes me custody assets at the BD's custodian, which is also a BD. My BD also has an RIA which I could belong to, but I don't.

 
Got a headache yet?