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RIA with a BD

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Dec 24, 2007 7:58 pm

I completely understand what you are saying and yes I do realize major differences in retail versus the institutional side of things.  I for one  am happy with being on the retail side of things and continuing to accumulate AUM.  However twenty years from now some members of my team that have an incredible track record when it comes to asset allocation and micropcap stock picking have wondered about the feasibility of opening a fund down the road.  I don't know of a BD that would allow it so it just seems that the odds are higher it could be down with the RIA model and yes I know regs are going to be a lot more intense.  At any rate it is a long time from now when that bridge is even ready to be looked at.

Dec 24, 2007 10:28 pm

And in the meantime have them do some research on exactly what the requirements are for being allowed to legally publicly publish a performance track record.  You will see there are strict limitations and that unless they take steps now to maintain proper records they will be S.O.L.

In any event, Merry Christmas.  Time for some egg nog …

Dec 25, 2007 2:27 pm

Good morning fellas.

I’ve got the answers to your questions, and I’ll get back to you within a day or so… just hanging with my family the past few days.

You both have some great questions, and I truly have the answers.

Merry Christmas to you both,


Dec 26, 2007 6:26 pm

The answer is ‘yes’, you can start your own mutual fund.

Why would you do such a thing? It really depends on your client base. Take your good clients who have $500k with you. It’s not a problem to allocate the funds among your funds, or your strategy, while meeting the fund and manager minimums. But, what about the smaller accounts (i.e. their kids) that you also want to take care of?

Simple. You start a mutual fund that replicates your strategy. The smaller minimums, in the case of your mutual fund, would allow you still service your smaller accounts without having to turn them away. Also, you can hire a fund administrator to deal with the tax documents, new account implementation, etc. All you have to do is manage a pooled asset account, and you are done.

In the case of a mutual fund… you would still be the RIA that would serve as the fund adviser. They would be separate businesses, and your RIA would be provided a management fee for the investment management services provided. Your service provider would collect a service fee that would be a percentage of the assets under management.

I can say, however, that the management fees charged for the funds managed are, IMHO, somewhat excessive. The one that I’m acutely familiar with charges 1.9% as an expense ratio, without loads, etc.

I agree, the regulatory issues are extensive. But, it depends on where you prefer to expend your resources and energy.

As for fund groups that I know of… there are a few, but not too many. As I had described, this seems to be the norm as to why an RIA would pursue this type of business.


Dec 27, 2007 3:06 am

Captain thanks for the post that is some great info and definitely shed some light on the situation for me.  Hope business continues to grow for you this new year