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Im 22 and want to become an RIA now

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Feb 17, 2011 3:00 pm

Yeah... I think you need to run some basic numbers. The average client age 22 - 30 might be able to commit to $2,000 per year in a Roth or something. If you're wildly succesful at prospecting maybe you'll find 2-3 new accounts per month. Total assets in a year .... maybe $50,000 to $100,000. At 1% fee to manage the money that's.........$500 to $1,000 per year in income. That's per year, not per month.

As others have said, get some experience. Get a job at a wirehouse, work like hell, mentor with an older FA. You'll quickly learn that 90% of the money is held by those over 55. Just the facts. But surprisingly, you'll also learn hat 90% of those over 55 have no problem working with a 20-something..... as long as they're sponsored by a national firm. After 5-10 years you'll be ready - financially and experience-wise - to open your own shop.

Now, even getting a job offer at a national brokerage will be a stretch. They generally do not hire new college graduates prefering to hire someone with 3-5 years sales or financial experience.

So getting to where you want to be - an RIA owner -might take several steps and a decade. It is certainly possible to skip the steps -there wil always be an example of someone, somewhere who did it - but you will severely lessen your chances of success.

Feb 17, 2011 6:40 pm

[quote=BigFirepower]

Official, when I started my indy practice, I estimated that my partner and I would need about 250-300k. That was based upon former colleagues and some research, and a dose of common sense. I'm sorry, but you simply do not have the capital to do what you are looking for. Your education background is in Human Resources too, you basically are a do it yourselfer hobbyist right now....

I hate to tell you this, but between you and a snowball in hell, the odds favor the snowball in a big way.

If you are smart, you'd take my original advice. But, free advice, and all that...

[/quote]

I appreciate your honesty

and i will take your advice, im going to start looking around for some Indys in the Philadelphia area and see if i can get in the door, any position doesnt matter, ill cold call all day for 8 bucks an hr i just need to get a feel of the business.

If i am able to take and pass the series 65 doesnt that mean i atleast have the education in the field to not be considered a hobbyist? I am not saying at all that the 65 will give me experience, experience is priceless. But i think my major is irrelavant, if a Art Major could pass the 65, that means he has aedquate knowledge in financial products right? i mean isnt that what the test is for?

Also regarding the 250-300k required to start Indy why so high? i am probably wayyyy off like i said before but to my knowledge to only expenses would be

Liscense and state registration fees
Office space rental fees (electirc, phone bill included)
Lead expenses (im sure i could compile and extensive list of leads myself for free using todays technolgoy)
Brocherues and mailing expenses


Besides those listed above, what other major expenses would i need to cover when starting an Indy at this age.

I consider myself to be a very optimistic person and following the 500 day war i dont see why i cant have 10M AUM in 3-4 years, id be 25-26 making 100k a year

just the tought alone is enough to make me give it a honest try.


Like i said I WILL be taking your advice and get some experience with an Indy just to get a feel of things.

could you be more indepth and explain what the 250-300k would go towards...are you talking about you would need 250-300k to live while you build your book or are you referring to actual expenses of building your book

Feb 17, 2011 7:36 pm

[quote=BigFirepower]

Official, when I started my indy practice, I estimated that my partner and I would need about 250-300k. That was based upon former colleagues and some research, and a dose of common sense. I'm sorry, but you simply do not have the capital to do what you are looking for. Your education background is in Human Resources too, you basically are a do it yourselfer hobbyist right now....

I hate to tell you this, but between you and a snowball in hell, the odds favor the snowball in a big way.

If you are smart, you'd take my original advice. But, free advice, and all that...

[/quote]

While I also think this kid is nuts for wanting to start an RIA with no clients..

I think your 250-300k.. is way off...(unless you are including a salary for yourself of close to 225k on the low end and 275k on the high end)..

Feb 17, 2011 7:51 pm

I would guess that an RIA can be started and maintained (think empty shell no marketing etc.) for less than $1000 per month. I am not sure though, where you would custody assets so you can set up a billing arrangement with no AUM. But I guess with the first client you can sort that out.

Is there a custodian with no minimum? Can someone itemized a realistic start up and maintenance cost for an RIA that pays no salary (as above think empty shell)?

Feb 17, 2011 8:19 pm

[quote=N.D.]

I would guess that an RIA can be started and maintained (think empty shell no marketing etc.) for less than $1000 per month. I am not sure though, where you would custody assets so you can set up a billing arrangement with no AUM. But I guess with the first client you can sort that out.

Is there a custodian with no minimum? Can someone itemized a realistic start up and maintenance cost for an RIA that pays no salary (as above think empty shell)?

[/quote]

There are at least 3 custodians with no AUM requirements... probably more..

These costs assume you have an office setup(computers, furniture, etc) or are going to work from home...

$2500 would probably get all your documents done correctly

$50-550 State Registration fees (depending on state)

Some misc internet/email fees...

But that is it..

Feb 17, 2011 9:52 pm

I thought thats all i would need is few thousand bucks to get it started.

Guess the hard part would be having a job that pays me decently for the first 3 to 4 years that would allow me enough time to cold call for  8 hrs a day

hmmmmmmm.

Feb 18, 2011 2:07 pm

[quote=N.D.]

I would guess that an RIA can be started and maintained (think empty shell no marketing etc.) for less than $1000 per month. I am not sure though, where you would custody assets so you can set up a billing arrangement with no AUM. But I guess with the first client you can sort that out.

Is there a custodian with no minimum? Can someone itemized a realistic start up and maintenance cost for an RIA that pays no salary (as above think empty shell)?

[/quote]

Yes, there are custodians with no minimum AUM required. However. If you talk to some of these firms they will tell you that they want $2-3mm so that they can breakeven. So the term "no minimum" is subjective. Many custodians want to see a business plan. How do you propose to raise the assets?

Scottrade wants 3 years industry experience. Less than 3 years? They want a designation.

Want to trade options? Not so fast. Most custodians want you to be experienced here. You will also need to post additional cash to meet master account minimums for options with some custodians.

No Minimum AUM Custodians:

Trade PMR

Scottrade

Interactive Brokers

SSG

Ceros Financial (will have to double check this one)

TD Ameritrade is $7mm minimum

Whoever you go with, prepare for background checks (U-4, Consumer Credit Reports, etc.). Its also worth checking into early if your state has minimum capital requirements or requres surety bonds. For the sake of your clients peace of mind consider Fidelity bonds.

Feb 18, 2011 3:21 pm

Just some perspective on costs, since I recently started my own RIA:

My overhead is about $3500/mo.  But that includes about $1100/mo. in health/dental for my family.  For you, that cost could probably drop by $700/mo.

So let's say we are at $2800/mo.

My wife is my assistant, so no staff pay.  You would not need an assistant starting out.

My rent + util are about $950/mo.  So your's will be more or less (hopefully not more, but you are in a major ciy).

My only other major expenses are my technology costs (phone, internet, printer/copier/fax, Morningstar, Quickbooks, webshosting,e tc).  I went heavy here.  Everything in is almost $1,000/mo.  You could get away with less.  A big part of that is Morningstar Office at like $400/mo., which you don't need.  You will need everything else.  However, some of those things you could get away with cheaper maybe.

I would say $2000/mo. is probably fair for ongoing monthly costs if you are renting a decent place.  Keep in mind, this would not provide you much flexibility for marketing dollars.

For startup costs, I spent maybe $20K.  But I did not need to buy much furniture.  You could probably do it with 10-15K.  But don't be penny wise and pound foolish.  You need to spend money on technology (laptop, all-in-one printer/fax/copier, phone, possibly a server or remote server or NAS, power strips, battery backups, etc.) a compliance firm to do all your initial filings and registrations (don't go it alone), licensing and registration fees, furniture, some decor for the office (you're a guy - get a woman's touch for this - no Dogs Playing Poker), deposits for rent and utilities, etc.

And don't forget, you will need probably 12 months or more of savings to supplement your income, depending on how fast you can ramp up your assets.  You will have exactly zero income for a few months, then a little bit, which will go to cover your expenses, then eventually you might have positive cash flow.  You MUST do a projected cash flow statement to see how much savings you will need to supplement operating expenses and your own income.  Do NOT be overly optimistic on the income side.

Bottom line - unless you have significant savings, or a signficant other that will support you financially for a few years, I am not sure how one would start an RIA firm from scratch.  However, if you ARE in this situation (for example, have a wife/girlfriend that makes decent money), then this might be a great idea to do now.  The other alternative is borrowing money from Mom & Dad.  Forget about loans - nobody will loan to you, and you likely can't pay them back anytime soon.

Feb 18, 2011 3:26 pm

[quote=Stig]

Yes, there are custodians with no minimum AUM required. However. If you talk to some of these firms they will tell you that they want $2-3mm so that they can breakeven. So the term "no minimum" is subjective. Many custodians want to see a business plan. How do you propose to raise the assets?

[/quote]

Exactly right.  I am with TradePMR, and although there is no technical minimum, they did tell me they wanted like $3mm within 18 months or something.  I don't remember the number exactly, since it was irrelevant for me.  But they don't want to just sign people up that aren't going to have a legitimate business.

Feb 18, 2011 4:55 pm

Official, you impress me.

You were smart enough to come here, and now that you are getting advice, you are listening/thinking. You didn't take my bait in seeing if you'd get really defensive and angry about my comments. Most people fly off the handle, you on the other hand understood/comprehended the news you didn't want to hear, but needed to hear.

Trust me, if you find the right person to work with/for, you'll get your shot. Finding the right person to work for, isn't easy, but with help from this forum, you'd be miles ahead. What part of the country are you in?

Feb 18, 2011 4:58 pm

Squash, yes, I included how much money I needed to live on, along with my Jr. Partner and Asst.

Before I went indy, I did my homework, and a good friend that had left years earlier was my guide. I listened over the years to him, took notes, and did EXACTLY what he advised. And I am very greatful for that advice, it has saved me 10s, if not 100k in costs/stupidity.

I'm a firm believer in learning from other's mistakes/experience.

Feb 18, 2011 5:05 pm

B24... your costs.

Are you including licensing fees, ce fees, b/o tax, account fees (like annual iras fees you eat)?

I think our 3 person office is running something around $9,000 per month in costs. That includes asst and her dental/med. Without her, let's call it $5,500. That includes $1,800 in rent. My firm, we have very advanced record keeping/software, so nobody should think I'm talking out my...

In a reasonable cost area, I'd tell someone to expect $4,500 per month in costs as a solo practice, with no asst.

$4,500 per mo in costs, x 24, minimum cost of living (let's say 5k in your pocket), start up costs of $50,000. You'd then, better have a "War Chest" of about $250,000. That would guarantee you of survival for 24 months, to 36 months.

Feb 18, 2011 6:31 pm

Everyone gave you a sound advice here Official and welcome to the board.  I'm not much older than you are, I just recently started at a wire.  I had about 6 years of relationship management experience behind me at a major bank so it helped me quite a bit.

I would start out at a wire, they will offer you some training, a decent salary (depending on your location), and atleast a name recognition from the wirehouse.

Even with this situation I still have about 2 years of my expenses saved up in my savings, JUST IN CASE. 

Feb 18, 2011 9:38 pm

[quote=BigFirepower]

Official, you impress me.

You were smart enough to come here, and now that you are getting advice, you are listening/thinking. You didn't take my bait in seeing if you'd get really defensive and angry about my comments. Most people fly off the handle, you on the other hand understood/comprehended the news you didn't want to hear, but needed to hear.

Trust me, if you find the right person to work with/for, you'll get your shot. Finding the right person to work for, isn't easy, but with help from this forum, you'd be miles ahead. What part of the country are you in?

[/quote]

North east, im in Philadelphia.

Any tips for finding good Indys in Philadelphia or surrounding suburbs?

Feb 18, 2011 10:03 pm

[quote=B24]

Just some perspective on costs, since I recently started my own RIA:

[/quote]

Congrats!

Just curious. Did you keep your Insurance license? I'm laying the groundwork for my move now, not sure whether I want to keep mine. I know, CE's aren't a lot of hassle. Any words of wisdom here?

Feb 18, 2011 10:11 pm

Official, I'm thinking about the next step, how to get you there. I got Friday Brain Freeze/Drain right now, but on Tuesday I'll get you some ideas.

Feb 24, 2011 10:50 pm

[quote=Official]

I understand your concern but isnt the goal of being an FA to make the best financial/investment decisions for your clients? I dont see how my age could limit my ability to succesfully manage money. Im sure there are people in their 60's that suck at it.

[/quote]

That goal won't matter if you're not able to support yourself and I assure you, if you stick to your intended target audience, you won't. It's not so simple.

You're getting some great advice and B24 hit the nail on the head. With that said, coming here and suggesting that you may need a second job to support the time you spend prospecting college grads is very very dangerous mentality.

You need to lay out a specific business plan to get started. You need to know what your expenses are, how much commission you'll need to bring in to support said expenses and work your way back to your target. Your target audience is in no way going to feed you and your practice. Impossible. It is also very difficult and really annoying to have a side job. Regulators don't like it and have you fill out a lot of paperwork. Your time is better spent closing business; not prolonging it. To reiterate what others said, unless you have money saved up now, don't even bother starting in this business. Once you put your foot in the door, you should be 100% commited to that job and nothing else.

You need specifics in place. Blind optimism alone is not going to cut it; I'm telling you. Your success in this business will boil down to who you know, getting in front of money, making enough money to survive, and having a specific plan on how you're going to achieve this.

Good luck.