The allure of independence is undeniable for many savvy Advisors seeking to break free from the confines of an old-fashioned wirehouse.
Whether joining a Registered Investment Advisor (RIA) firm, adopting a hybrid model, or founding their own practice, forging a new path offers unparalleled autonomy, client-centered decision-making, and the potential for greater financial rewards.
However, this freedom comes with its own set of responsibilities — not least of which is navigating the complex regulatory frameworks established by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Understanding and adhering to these regulations is vital for ensuring a successful and compliant transition to independence. Let’s explore the key considerations, common challenges, and practical strategies to help wealth management professionals confidently move forward.
The Current Regulatory Landscape
The first critical decision when going independent is determining whether you need to register with the SEC or state securities regulators.
Generally, Advisors managing over $110 million in client assets must register with the SEC, as specified by the Investment Advisers Act of 1940, while those managing less typically register with their state of operation. However, this threshold isn’t the only consideration.
Individual registered representatives, or registered financial professionals, must register with FINRA, pass a qualifying exam such as the SIE, Series 6, or Series 7, and be licensed by your state securities oversight office. Hybrid advisors must ensure their broker-dealer affiliation complies with FINRA’s licensing and supervisory requirements.
Wealth management professionals need to carefully evaluate their business model, client base, and service offerings to determine their registration obligations. Mid-sized Advisors managing between $25 million and $110 million may have to register with the SEC if they provide advice to investment companies or provide services in 15 or more states.
Thankfully, the senior consultants of TERRANA GROUP have decades of experience providing essential regulatory and compliance guidance to those who are ready to explore RIA and emerging Advisory models.
Fiduciary Duty and Client Best Interest
Advisors operating under the RIA model are held to a fiduciary duty — the highest standard of care in the financial services industry. This duty requires Advisors to act in their clients’ best interests, avoid conflicts, and provide full and fair disclosure of material facts.
KPMG has designated 2025 as the Year of Regulatory Shift, and they expect the focus on AI and cybersecurity to remain intense. Cybercrime has increased by more than 600% since the pandemic and there’s no end in sight, with rising threats of phishing, ransomware attacks, credential stuffing, and business email compromise (BEC) schemes.
It’s anticipated that the SEC’s Regulation S-P will be amended to modernize and enhance RIA data security protections, requiring “brokers, dealers, investment companies, and registered investment advisers to adopt written policies and procedures that address administrative, technical, and physical safeguards to protect customer records and information.”
What steps can independent Advisors take to ensure the security of their client data while delivering the concierge service demanded by today’s tech-native investors?
- Perform a cybersecurity health check: This detailed professional assessment reveals your current risk status, critical exposures, and how to protect your cyber assets.
- Adopt a proactive and comprehensive approach: One of the most important ways to lock down your accounts, apps, and devices is by using strong passwords and enabling multi-factor authentication (MFA), according to LPL Financial.
- Implement encryption and remote wipe capabilities on smartphones, tablets, and laptops: Combined with biometrics or MFA, these layers of security help reduce your practice’s vulnerability. Always use a VPN and avoid connecting to public WiFi networks.
- Utilize secure communication platforms: A secure, user-friendly client portal is ideal for engaging in real-time, tracking activity, and customizing your messaging while boosting investor confidence.
- Educate your clients: Older individuals are often a target for phone and online scams. Clearly explain common tactics, warn them against sharing sensitive information in calls or emails, and encourage them to verify suspicious communications or transactions.
Selecting the right custodian for your RIA or hybrid advisory practice plays a pivotal role in data and asset management as well as regulatory compliance. § 275.206(4)-2 of the Investment Advisors Act, Custody of Funds or Securities of Clients, requires wealth managers to “maintain their clients’ assets and securities via a financial institution or entity that meets the requirements for a qualified custodian.”
This essential and impartial third-party entity provides an array of fundamental services for independent Advisors, from administrative support to mitigating regulatory risks. Top custodial organizations can give you a competitive edge with the latest trading platforms, reporting tools, and integration with AI-powered AdviceTech software.
Expert Insights and Guidance
RIAs are subject to various SEC and FINRA rules and regulations governing, among other things, their marketing and disclosures to clients, best execution for client transactions, and disclosures of conflicts of interest and disciplinary information.
Leaving a highly structured wirehouse environment for a more modern and flexible advisory model where you’re responsible for regulatory compliance can be daunting. It’s crucial to partner with an experienced team that can help you assess your options and find opportunities that align with your goals and values.
For over 32 years, the senior consultants of TERRANA GROUP have been building powerful relationships throughout the wealth management and financial services space, serving as an indispensable resource for Advisors and investment professionals.
The New Year is the perfect time to make a move — reach out to us today!
