Break Away From The Pack

Common mistakes to avoid when forming an RIA

On Behalf of | May 6, 2023 | RIA Formation |

Forming a Registered Investment Advisor (RIA) can be a complex process that requires careful planning and attention to detail. Unfortunately, as with any business venture, there are common mistakes that can derail the success of an RIA.

With many potential pitfalls in your path to success, it is important to be aware of these common mistakes and take steps to avoid them. These are some of the most common mistakes that those who are interested in forming an RIA make and ultimately have to correct.

Failing to register with the SEC properly

One of the most common mistakes that RIA owners make is failing to properly register with the Securities and Exchange Commission (SEC). RIAs are required to register with the SEC if they have more than $100 million in assets under management or are located in certain states. Failing to register with the SEC properly can result in fines, penalties and legal action. Therefore, it is important to ensure that all necessary paperwork is filed on time and that all requirements are met to comply with SEC regulations.

Not having a solid business plan

A well-thought-out business plan can help to guide the growth and success of an RIA and also help attract investors and clients. It would be best to consider factors such as target markets, services offered and pricing structure when developing a business plan for an RIA before making a final bold decision.

Ignoring compliance requirements

RIAs are subject to a list of compliance requirements, and adhering to them is important. Failure to comply with regulations can damage an RIA’s reputation. Therefore, staying up-to-date on regulation changes and ensuring all RIA employees are trained on compliance requirements will be key.

Overlooking cybersecurity risks

In the digital age, cybersecurity is a critical concern for RIAs. Failing to address cybersecurity risks properly can lead to data breaches and financial loss. Therefore, it is important to have strong cybersecurity measures, such as firewalls, encryption and employee training to protect sensitive client information and safeguard the RIA’s reputation.

Even though forming an RIA can be a complex process, it doesn’t mean one can’t find a way to go about it successfully. Learning the potential pitfalls before starting this endeavor and establishing a solid strategy will better ensure your success.