All posts tagged RIA

Most of us know by now to have a plan for our eventual exit from this life. The centerpieces of the plan typically are insurance, a will and a trust, and beneficiary designations properly completed on all applicable accounts. On the other end of the scale, most of us have an emergency fund for a sudden precipitous financial hit caused by an unexpected decline in revenue or a spike in expenses. Some of us even plan ahead for the unfortunate possibility of the demise of our marriage with a “pre-nup” or other financial arrangements.

But how many of you have made contingency plans for your current position in the industry? If you are a decent producer associated with a large wire-house, are you blinded to the fact that your relative contentment might not be the only determining factor for your continued tenure? That is a fancy way of asking if you have a plan if you get shit-canned.

Many investment advisers and dually registered folks conjugate about what it would be like to have their own RIA. The American dream of being one’s own boss and the shining promise of independence and profits can almost make one giddy. But, I am trying to impress upon you the importance of realizing that one day circumstances beyond your control might push you from dreaming to scrambling.

Whether you would prefer to experience practicing your honed fiduciary skills with an independent broker/dealer, a large SEC registered RIA, or a small state-registered RIA, the amount of preparation for the transition will depend upon your current model. The more detailed your plan, the more likely you will survive the transition, particularly if sudden, with less (rather than no) financial or cardiovascular hardship. The amount of regulations pertaining to everything from the type of files you must keep, regulatory filing deadlines, and certain policy packets that must be in place can be overwhelming without the assistance of a valued and knowledgeable advocate.

The market is filled with attorneys and consultants that can assist you with your transition. You will need one of each and this is not the time for you to employ penny wise and pound foolish measures. Once you have a specific confidential plan in place, you can decide whether or not to use it, or simply put it in the drawer with your insurance policy and estate planning documents.

My law firm has assisted individuals that have needed to migrate at the drop of a hat for employment or regulatory reasons. While it is doable, it certainly isn’t optimal. And the more independent you want to be, the more details there are to identify, evaluate, and address. Where you want your office to be located will suddenly be as important as why you want to rely upon us for back-office support.

In addition to reviewing this blog and joining The SyndicateI would recommend to you a recent article by Jill Cornfield entitled “Independent Advisers: Is striking out on your own all it’s cracked up to be?Start planning for your dreams in case they arrive sooner than you planned!


          Too many small and mid-size investment advisory firms fail to adequately self-audit.  There – I said it.  Do you agree with me?

         There was much debate and wrangling over the SEC to state regulatory transition prompted by the Dodd-Frank Act.  The state regulators vowed that they had the capacity to regulate and audit the over 3,000 mid-sized RIA’s that came under their purview with the increase in the SEC AUM threshold.  And they have been living up to their vow.  As such, small to mid-size independent RIA’s are more likely to be subjected to a routine exam.  In just the first six months of 2013, state regulators conducted over 1,000 audits, finding over 6,000 deficiencies.  In my experience, the vast majority of these firms fail to retain outside legal counsel for routine guidance, to assist with self-audits, or to step in quickly when the regulators arrive at the front door.

         A couple of years back, my law firm represented an investment advisor representative whose small satellite office was subjected to a routine state exam.  The regulators found a myriad of problems a self-audit would have discovered.  Rather than accepting responsibility for the exam deficiencies, the RIA threw the representative under the bus and blasted him on his U-5.  An arbitration panel subsequently awarded our client almost $3.5 million.  Regular counsel and self-exams would have been a lot less expensive.

         Not long after that case, I served as an expert witness for an investor whose representative steered her towards unregistered securities purportedly backed by real estate in England.  The small RIA’s CCO couldn’t even define a security during the hearing.  A more robust audit program would have unveiled the representative’s arguably well-intentioned but utterly ignorant advice regarding the investment contracts.

         So my admittedly self-serving advice is this: if you are a small or mid-sized RIA, budget for consistent legal advice and self-exams.  Saving a buck on compliance isn’t even “penny wise”.