How to Start an Investment Advisory Firm: Tips for Independence

Making the leap to independence as a financial advisor holds the promise of greater autonomy, the ability to shape your firm’s culture, and the potential for increased long-term growth.

However, transitioning from a wirehouse or broker-dealer to start an RIA involves more than just changing your business address. It requires building out your operational infrastructure, navigating regulatory compliance, setting up technology, and maintaining client relationships throughout the shift.

With the right preparation, a breakaway advisor could launch an advisory firm smoothly and confidently. If you are researching how to start an investment advisory firm, keep in mind these key elements involved in RIA formation to give yourself a clearer view of what lies ahead as you begin building your own practice.

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Revisiting the Differences in Advisory Firms

While all financial advisors aim to help clients reach their financial goals, not all operate under the same rules, standards, or compensation structures.

RIAs are distinct from other types of advisers (such as broker-dealer representatives) in several key areas. Understanding the differences illustrated in the chart below can help clarify what it means to operate as an independent RIA and what sets them apart in the financial services landscape.

	RIA	Broker-Dealer
Registration/Regulatory Authority	SEC or state regulators	FINRA and SEC
Fiduciary	Yes	Suitability and Best Interest (typically based on FINRA rules)
Typical Fee Structure	Annual fee based on a percentage of assets under management	Commissions on transactions

Best Practices for RIA Formation

Establishing an independent practice requires taking on the numerous operational and regulatory details of your business. To set yourself up for success, it is essential to have a solid plan and a new RIA checklist in place before making the leap.

Business Planning

Finding the right business model has its own set of advantages and trade-offs. If going completely independent seems premature, joining an existing RIA as an Investment Advisor Representative (IAR) or operating as a hybrid advisor offering both fee-based services and commission-based products might be a viable intermediate step.

If you are planning to break away entirely, start by developing a comprehensive business plan. Establish a strong value proposition, clearly define your target audience, and determine your service offerings.

A thorough business plan helps establish your brand identity and keeps you focused. It should include your marketing strategy, a competitive analysis, and financial projections. Outlining these elements early on provides a roadmap to track your progress and navigate upcoming regulatory and compliance requirements.

Forming a Legal Entity

Creating a formal business entity is a foundational step in going independent. Many advisors choose to establish a limited liability company (LLC) or a corporation to serve as their domestic entity.

This structure provides vital asset protection, separating your personal liabilities from your business operations. Depending on the structure chosen, it may also function as a pass-through entity for tax purposes.

During this phase, you will draft foundational documents such as an operating agreement or articles of incorporation, and establish a business bank account to keep finances strictly distinct.

Obtaining Professional Licenses

Operating legally requires securing the proper licenses. This is key to how to start an investment advisory firm. The Uniform Investment Advisor Law Examination, called the Series 65 exam, was developed by the North American Securities Administrators Association (NASAA) to test the competency of individuals providing fee-based investment advisory services. It features 130 questions with a 180-minute time limit, covering economic concepts, wealth management strategies, and industry ethics.

Additionally, Form U4 is a required document filed electronically via the CRD/IARD system with FINRA that establishes registration for representatives of broker-dealers and investment advisors wondering how to start an investment advisory firm.

To meet evolving client demand, many advisers also pursue professional designations like the Certified Financial Planner® (CFP®) or Chartered Financial Consultant (ChFC), which enhance your expertise in the competitive market.

Registration and Regulatory Compliance

Investment advisory firms with $110 million or more in assets under management are generally required to register with the U.S. Securities Exchange Commission (SEC). Firms with less than $100 million typically register with the state regulators where they conduct business.

To register, you must create an online account with the Investment Adviser Registration Depository (IARD). This allows you to file Form ADV, your primary registration and disclosure document.

Because compliance requirements are complex and strict, engaging an RIA compliance consultant can help ensure your initial applications are accurate and your foundational compliance program is robust.

Startup and Ongoing Costs

For professionals wondering how to start an investment advisory firm, careful budgeting for both initial setup and ongoing operations is critical. Cash flow management is a vital factor for any new business. You must account for custodian fees, legal and compliance consulting fees, state registration fees, and operational expenses like office space and equipment.

Additionally, building your tech stack, which includes financial planning software, portfolio management tools, and payroll/invoicing systems, represents a significant portion of technology costs. Ensuring you have sufficient capital to cover these expenses is vital for sustaining the business before revenue fully ramps up.

Monitoring Growth and Scaling

Once your doors are open, your focus will naturally shift toward monitoring progress and scaling the business. Tracking your assets under management and refining your client acquisition strategies are critical for long-term success.

As your firm expands, you will need to plan for hardware and software upgrades, continuous employee training, and periodic goal check-ins. It is also important to recognize that compliance requirements evolve as your business grows; regular reviews of your business structure and policies ensure your firm maintains strong liability protection and adheres to all regulatory standards.

Other Key Requirements for RIA Registration

Please note the below is not all-inclusive. There are many regulations applicable to both state and SEC-registered investment advisers, and it is extremely important to understand the rules before beginning the registration process.

Form ADV: SEC-registered investment adviser firms must comply with Form ADV requirements, including filing initially and annually: Part 1A, Part 2A, Part 2B [1], and Part 3 (Form CRS). Part 1 details the firm’s legal entity and business operations, Part 2A outlines the firm’s advisory practices and disclosures in a brochure format, Part 2B is a supplemental brochure detailing the business and educational background of each IAR, and Form CRS is a concise summary of the firm’s services, fees, and conflicts of interest.
Disclosure Brochure Delivery Requirement: Registered Investment Advisers are required under both federal and state regulations to deliver a Form ADV Part 2A and Part 2B to each new client before or at the time of entering into an advisory agreement. Form CRS must be delivered to new retail clients at the same time. There are also additional requirements for delivery to current clients during their term of engagement.
Written Policies and Procedures: Investment advisers must have written compliance policies and procedures customized to the firm’s business, serving as the guiding document to enforce adherence to federal and state regulations and prevent violations.
Books and Records: Accurate and current business records must be maintained as specified by federal and state regulations.
Examinations and Inspections: SEC or State staff, as applicable, conduct periodic inspections and examinations of registered firms.
State Registration/Notice Filings: SEC-registered firms must make notice filings (i.e., file a notice on Form ADV Part 1 and pay an annual fee) in the states where they conduct business. State-registered advisers may need to register in more than one state, depending on the location of firm offices, IARs, and/or clients.

Learn How to Start an Investment Advisory Firm Fit for the Future

Fortunately, today’s RIAs have access to a wide range of resources to support their advisory business. [2] Core Compliance takes the time to understand your unique goals and provide the path to help get you where you need to be. We can assist with all compliance-related needs, including applying for registration, creating your Form ADVs, drafting written policies and procedures, and performing ongoing monitoring and reviews to help ensure adherence to regulatory requirements.

Let us take care of your compliance, so you can focus on building a business that’s fit for the future.

Ready to make the leap? Learn more about our Regulatory Filings and Registrations support and schedule a consultation today.

Author: Core Compliance; Editor: Tina Mitchell, Managing Director, Consultation Services; Core Compliance & Legal Services (“Core Compliance”). Core Compliance works extensively with investment advisers, broker-dealers, investment companies, and private fund managers on regulatory compliance issues.

This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon regarding any particular facts or circumstances without first consulting with a lawyer and/or tax professional.

[1] Only state registered investment advisers are required to file their Form ADV Part 2B(s).

[2] See https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-avoid-it

[3] See Vendor Roundup: Tools & Services for Success in 2025 – Core Compliance