There are a lot of insurance agents and financial planners who get to a point in their careers where they need a new challenge. Due to their experience in the financial services industry, they believe they want to and can actively manage their clients’ money. If you are one of these people and you are ready to create your registered investment adviser, the last step that should be done before creating is to check whether you can answer the next seven vital questions as the answers will make or break your new business.
1. Do really you want to be a business owner and are you driven to build a business?
This can be considered to be the most fundamental question that needs to be answered because it takes a lot of work to run a successful business let alone a registered investment adviser
2. What sum of money under management do you anticipate having during the first year?
As a matter of fact, this question must be asked early in the decision process as if there isn’t a large enough book of business to manage; there is no point in setting up a registered investment adviser.
3. Will your book of business generate enough fees to pay for the added expenses?
You should just sit down with pen and paper and make a list of expected expenses. At least, the list should include registered investment adviser specific expenses such as errors and omissions insurance coverage, compliance system creation, billing software, disaster recovery system, and record keeping systems. In addition traditional business expenses, such as, rent, telephone, and computers and some others must be included.
4. Are you willing to and are you aware of how to manage money?
Of course, most people in the financial services industry have some money management skills. But you should understand that actively managing money can be a very time consuming and stressful task. The truth is that money managers need to constantly monitor and adjust their portfolios to the daily fluctuations of the markets.
5. What company is the best custodian for your clients and the services you are going to provide?
The point is, a good custodian can make or break a start up registered investment adviser. A lot of custodians are designed to help registered investment adviser with powerful software and back office support while a poor custodial relationship can strain client relationships to the point of losing long term clients.
6. Do you want to be in charge of your own compliance responsibilities?
As a registered investment adviser owner you must be willing and ready to put your time, money and resources in to your compliance department as the business grows. Opening a registered investment adviser guarantees that a regulator will examine the firm within the first one to three years.
7. How comfortable are you disclosing all of your conflicts of interest?
You must realize that a registered investment adviser has a fiduciary duty to its clients. It means that the registered investment adviser must put the clients’ interests ahead of your own and disclose all conflicts of interest. Of course, it is not easy for everyone but it is necessary and required.
In the case that you, as a prospective owner, answered these seven crucial questions and felt good about the answers, it might be a time to consider opening a registered investment adviser.
Read about forex managed account.
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