For financial experts seeking greater independence and control over their practices, becoming a Registered Investment Advisor (RIA) can be a transformative step toward discovering new horizons.
However, the process can seem daunting, with intricate regulations and varying licensing and credential requirements — and there are many myths and misconceptions about leaving the confines of the wirehouse for more autonomy and a more stimulating experience.
This guide from our Senior Consultants at TG aims to demystify the process, providing a step-by-step roadmap for wealth management professionals ready to make the move to RIA status.
An Ever-Evolving Environment
Before embarking on this exciting journey, evaluating your goals and motivations is crucial. Establishing a clear vision of the future with a strategic plan helps clarify the decision-making process.
Explore your strengths and threats. Are you the embodiment of the entrepreneurial spirit, or do you yearn for a collaborative turn-key model that frees up more time to pursue your passions?
RIAs have a fiduciary duty, meaning they are legally obligated to act in their clients’ best interests, a responsibility that sets them apart from broker-dealers, who may have conflicts of interest due to commissions and product sales quotas.
This presents forward-thinking Advisors with a unique opportunity to craft a niche client-centric approach and build stronger relationships based on trust and open communication.
The RIA landscape is experiencing significant growth, driven by increasing demand for personalized and conflict-free investment advice and sophisticated wealth management solutions.
Making Moves to Independence
The specific steps involved in RIA registration depend on the size and complexity of your firm and the regulatory body in your region.
Per the Office of the Illinois Secretary of State, “any person who engages in the business of financial planning or who manages $100 million or less in investments is required to register as a state-registered investment adviser with the Illinois Securities Department.
To file an RIA application with the state of Illinois, Advisors must first apply to the Financial Industry Regulatory Authority (FINRA) for an online account (a process called Entitlement). While RIAs aren’t regulated or supervised by FINRA, the state uses FINRA’s WebCRD/ IARD system to process applications.
The specific forms you need to complete will vary depending on your registration type. Common forms include:
- Form ADV: This comprehensive document provides detailed information about your firm, its services, fees, and personnel.
- Form CRS: This client relationship summary provides a concise overview of your firm’s relationships, products, and conflicts of interest.
FINRA’s Series 6 and 7 licenses are by far the most commonly sought qualifications for financial Advisors and broker-dealers. Candidates must be sponsored by a self-regulatory organization or a FINRA member firm.
Financial professionals who wish to become Registered Representatives must pass a series 63, 65, or 66 examination. These evaluations are administered by FINRA and NASAA, or the North American Securities Administrators Association.
Series 63
Formally known as the Uniform Securities Agent State Law Examination, this exam consists of 60 scored questions and 5 unscored questions. Candidates have 75 minutes to complete the exam, and to pass, you must correctly answer at least 43 of the 60 scored questions.
The Series 63 is the state law test for broker-dealer representatives. It covers state and federal regulations, definitions, administrative issues, required disclosures, client communications, and more.
Series 65
The Uniform Investment Adviser Law Examination, called the Series 65 exam, was developed by NASAA to test the competency of individuals who wish to provide fee-based investment advisory services.
It has 130 questions, with a time limit of 180 minutes, including queries on the subjects of basic economic concepts, different investment vehicles, financial reporting, wealth management strategies, data analysis, and industry ethics.
Series 66
The Series 66 exam, aka the Uniform Combined State Law Examination, is a combination of the Series 63 and Series 65 exams but does not include the product, analysis, and strategy questions that are a pivotal part of the Series 65 exam.
There is no prerequisite for this evaluation, but aspiring Advisors also need to complete the Series 7 qualification as a co-requisite in order to register with the state of Illinois. There are 100 questions, with a time limit of 150 minutes.
Looking Ahead
RIAs are subject to ongoing compliance requirements, including annual filings, recordkeeping, and adherence to various regulations, which can seem overwhelming to Advisors considering a paradigm shift.
Starting out as an RIA or independent broker-dealer is a complex process with many moving parts, but partnering with the experienced and knowledgeable professionals at TERRANA GROUP gives you a vital competitive edge.
We specialize in helping Advisors seeking greater independence and control over their practices launch this adventure and find the perfect cultural fit — let’s start the conversation today!
