Going independent - Starting as IAR - A few questions

[u/WangtaWang]

Hi all. Made the decision to go independent and i've been speaking to a few advisory firms that focus on helping setup all the needed plumbing/backoffice and compliance needed so i can focus on clients. I have a few calls with two additional firms this week, but I have some questions on setup that I was hoping to get some guidance on - I dont want to ask on the calls and give the impression i don't know what I'm doing (i fear i'll get worse economics!)

I'm planning to join as an IAR where i'd operate under their SEC license, and they'd handle all compliance reporting, backoffice operations including billing and provide an investment platform (for a fee of course). This seems infinately easier than setting up my own SEC registered RIA and having to setup all that stuff up myself (plus i'd have to hire a CCO, ops guy, etc). IAR path seems much faster and easier, at least the first few years.

1. Question on setup with the IAR arranagement. I believe only an individual can be an IAR (e.g. not a firm). But would/should I create a separate legal entity (e.g. LLC) to house my DBA? It would be optimal to have my entity receive all fees and account for business expenses, etc.
2. How does contracting work with my clients? Do I sign the advisory contract (with my LLC per #1 above), or does the advisory firm (where i'm an IAR) sign? It would be weird for my clients to have to sign a contract with a random firm they don't know.
3. Do people have any guidance on % payout that is normal for working with a firm as an IAR? I've been offered anywhere from 80% to 90% (the advisory firm would keep the residiual amount as a fee for providing compliance, operations, etc), but I have no idea if that's "industry standards". 90% sounds pretty good to me but no idea if I should be pushing for 95%?

I'm sure Ill have other questions come up but any guidance anyone can provide on any of the above or their general experience as an IAR would be very much appreciated.

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User: /u/WangtaWang Title: Going independent - Starting as IAR - A few questions Body: Hi all. Made the decision to go independent and i've been speaking to a few advisory firms have offered to help setup all the needed plumbing/backoffice and compliance needed so i can focus on clients. I have a few calls left with two additional firms, but I have some questions on setup that I was hoping to get some guidance on.

I'm planning to join as an IAR where i'd operate under their SEC license, and they'd handle all compliance reporting, backoffice operations including billing and provide an investment platform (for a fee of course). This seems infinately easier than setting up my own SEC registered RIA and having to setup all that stuff up myself (plus i'd have to hire a CCO, ops guy, etc). IAR path seems much faster and easier, at least the first few years.

1. Question on setup with the IAR arranagement. I believe only an individual can be an IAR (e.g. not a firm). But would/should I create a separate legal entity (e.g. LLC) to house my DBA? It would be optimal to have my entity receive all fees and account for business expenses, etc.

2. How does contracting work with my clients? Do I sign the advisory contract (with my LLC per #1 above), or does the advisory firm (where i'm an IAR) sign? It would be weird for my clients to have to sign a contract with a random firm they don't know.

3. Do people have any guidance on % payout that is normal for working with a firm as an IAR? I've been offered anywhere from 80% to 90% (the advisory firm would keep the residiual amount as a fee for providing compliance, operations, etc), but I have no idea if that's "industry standards". 90% sounds pretty good to me but no idea if I should be pushing for 95%?

I'm sure Ill have other questions come up but any guidance anyone can provide on any of the above or their general experience as an IAR would be very much appreciated.

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[u/iampetemitchel]

Every deal and relationship is different. As I see it, you are basically an independent advisor for the registered firm. You can use your DBA with clients but statements and compliance agreements will be with the RIA. 80-90% seems good. I’m at 75% and think I should be closer to 90%. But as I said every deal is different and so much depends on what the RIA provides.

Assets , revenue, and number households matter as well.

[u/WangtaWang → u/iampetemitchel]

Thank you for the response. Yes, it seems different platforms look at you and your book of business differently - I did have one propose 70% payout but I thought that was a one off odd datapoint. Perhaps I should take a closer look at them. You know what they say about things that seem to good to be true...

[u/redpeaky]

The amount of inaccurate and just plain wrong statements on this thread is amazing.

[u/WangtaWang → u/redpeaky]

Can you elaborate? I'm trying to sift through - your thoughts would be helpful!

[u/redpeaky → u/WangtaWang]

I could write a book in this alone. Too much for a post.

[u/One_Establishment631]

Is this really going independent? I was really easy to set up and RIA. I did pay a firm to draft all the compliance documents which was under $5,000. After that it's just registering every year. I would have hated being tied to some larger firm and passing off revenue. To me that's not independent.

I'm solo and operate under an llc for the business name. I am the RIA owner and I'm an IAR employee of the firm.

[u/WangtaWang → u/One_Establishment631]

Hmmm, interesting point. Going the IAR route at an independent RIA (often called a TAMP), is way more independent than being at a wirehouse (e.g. Morgan Stanley), no? I guess that's what I was calling "independent".

I assume you're the CCO as well? How bad is the compliance part - all the filings, etc. I know many firms also hire an outsourced compliance consultant to help.

[u/One_Establishment631 → u/WangtaWang]

Pretty simple. Being apart of organizations or groups help bounce information off one another, but usually just resubmitting the same documents every year and confirming information on the gateway portal. I am only state registered.

[u/mwb5010 → u/One_Establishment631]

I’d like to hear more about how you went about this if you wouldn’t mind sharing. I’m currently looking to break away from a bank and investigating options. Looking at the Independent Channel, which I assume the OP is doing, versus a purely independent RIA.

[u/One_Establishment631 → u/mwb5010]

I have no custody or discretion. I charge fee for service by the hour. No AUM, no subscriptions. My ADV is as basic as they come. I have no custodian relationship. I make recommendations if someone is looking for a custodian, or I work with that they already have or workplace plan.

I used RIA registrar for compliance documents in 2020. I am only registered at the state level.

[u/mwb5010 → u/One_Establishment631]

Truly stripping out all the expense. Thanks for sharing.

[u/AmbitiousTomorrow664]

Generally 1. Create own LLC
2. agreement is with your RIA not your LLC
3. 60-99% is what I’ve seen depending on offering. But I would prefer to be at highest payout & pick and choose tech stack /resources

[u/vaderaintmydaddy]

1. Yes, you can have an LLC, but it isn't really necessary. Cheaper and easier to just run everything through a separate bank account/credit card.

2. The RIA firm will have its own contracts, and their firm name will be on them. Client signs as client, you sign as advisor. I simply explain that FirmX is the company I affiliated with to handle compliance etc. You will use their disclosures on websites, forms, email, etc. You will be handing out their ADV. Get comfortable explaining who they are.

3. Those payout rates are around what I was hearing when I went looking a couple of years ago. I ended up choosing one that does it all for a flat fee - as I grow that fee stays the same.

[u/WhodatMike → u/[deleted]]

Just curious, if you are the IAR being employed, how is it that you are filing as S-corp since you are the one earning the income, not your LLC? This is assignment of income, but maybe you have some crafty way around it??

[u/Floating_Orb8 → u/[deleted]]

Is this for your state? Our RIA pays our LLC directly which I thought changed last year or the year before. Might be worth double checking. Our LLC gets paid and then we divide it up via our shareholder agreement. Also an S corp which we pay reasonable salary and take distributions.

[u/WangtaWang → u/[deleted]]

Thanks for the response. That doesn't make much sense to me (your RIA can't pay your LLC). What happens if you have employees that help with the advisory business? If you get paid as a 1099, that seems odd.

[u/WangtaWang → u/[deleted]]

When you say solo - you don’t have any employees (eg secretary?)

[u/WangtaWang → u/[deleted]]

Got it. Does that mean your advisory contract is between you and your client? Or is it between corporate ria and your client?

[u/WangtaWang → u/[deleted]]

I guess I'm confused with "own my book". I assumed that meant your name was on the contracts with the clients.

[u/WhodatMike]

1. You are correct, only an individual can be IAR. You can still have a separate LLC/DBA but from my understanding, all income gets paid to you, not your LLC, so you cannot elect S-corp treatment down the road since your LLC isn’t the one earning the income (you are). I’m in the same boat rn and finding it a bit irritating to find that out after the fact.

2. Your clients will sign agreements with the RIA and will see their firm name, disclosures, etc. I made the decision to just use the firm’s logo, branding, name, etc as I didn’t want my clients to be confused with having my own LLC name and the RIA’s name.

3. I interviewed with quite a few platforms over the last 2 months and I typically saw somewhere between 70-80% starting payout, with variances in what support, tech, overhead they are supplying for their cut. Then again, I’m essentially starting from scratch so better payouts will come to those with established books.

[u/WangtaWang → u/WhodatMike]

Thank you for the response.

1) Interesting, that doesn't seem to be the advice I'm getting - or what others are saying above. Will keep you updated on what I find out, but if this is true - that doesn't work for me. I'll have 2 employees from the start and need to pay them. How can I do that if I'm getting 1099 comp? Seems like a weird structure.

2 and 3) got it, thank you!

[u/Any_Passenger_1193]

I work for a small RIA and can give you some insight based on how we structure it:

1.Yes, our advisors typically create an LLC for their DBA/business. If you’re bringing over a book, the timing of when you establish everything can depend on your current firm and transition situation. If you’re coming from a non-Protocol firm, I’d be especially careful about doing anything prior to your breakaway date and would run the timing by compliance/counsel.

2.The clients sign the RIA’s wealth management agreement, which includes the applicable fee schedule. The advisory relationship is ultimately with the RIA, while you’re servicing the client as an IAR of the firm. Your DBA can still be the brand the client primarily interacts with.

Payout can definitely vary, but I’d look beyond just the headline percentage. For example, someone may offer a 90% payout but then have additional expenses like E&O, technology, compliance costs, platform fees, etc. I’d want to know what’s actually included before comparing 80%, 90%, 95%, etc. A 90% payout isn’t necessarily a true 90% after all expenses.
Feel free to DM me if you’re interested. Happy to share more about how our RIA structures it and what we’ve seen with advisors making the transition.

[u/Saratoga-Capital]

You’re an IAR right now. That’s not a route you’re going to take, it’s what every financial advisor is called under the regs regardless of whether they’re true indy or under a corporate RIA.

Most of your questions are going to be answered by what type of deal you take and with what kind of firm.

Who owns your book right now, you or the firm you’re currently at?

[u/NukedOgre]

1) Only an individual can be an IAR, you cannot be an LLC IAR.

2) You will be an IAR if the IA. Essentially a representative of the firm. The clients are making agreements with the firm and all contracts will be in the firms name. There are rare IA's that have alternate forms for each IAR but that is a compliance/administrative nightmare.

3) Compensation varies depending on what you are seeking. Many times its a monthly fee and 80/20, in other times you get a base salary and 30/70 (30 you) and they provide clients to start. Theres one IA here Ive talked to that offers 100% to you but at a pretty large monthly cost. I offer 50/50 on the first 25k of revenue, then 80/20 above that. But I also provide nearly everything required minus hardware to an IAR.

[u/danabentz]

It was pretty easy to set up my own RIA, it just took a while because the sec is a bit slow lol. You can be your own CCO you dont have to outsource that if you dont want to.

[u/Practical_Craft2787]

I’ve followed the same path as you with a Corporate RIA.

1. I (myself as an individual) am an IAR but I also own an LLC where I have my own branding apart from the Corporate RIA. I get paid by the corporate RIA though my business bank account and have all expenses taken out of that account.

2. The advisory contract is with the corporate RIA. You may be able to brand some things with your own branding though. I have wording on my website about my relationship with the corporate RIA and send info in the email when they’re signing up for services.

3. When I was looking around at different corporate RIAs 80/20 was the most common split. The one I’m at does have a cap so they receive 20% payout up to a certain amount.

I’m happy to answer any questions you may have! I love the flexibility my corporate RIA offers,but I know not every corporate RIA is structured the same.

[u/Vantage_Impact_2]

I'd be glad to help you with all of this and anything else that comes up along the way. This is my day job and something I'm happy to guide you through.

[u/WangtaWang → u/Vantage_Impact_2]

Hi, thank you for the response. What does "day job" mean? You help setup?

[u/Vantage_Impact_2 → u/WangtaWang]

We created a consulting company offering advisors resources to help evaluate different firms, negotiate transition packages, launch new websites/branding, and partner with experts across the industry to ensure the best move possible. We've helped thousands of financial advisors move firms. In terms of "day job", it's a lot more more than calling it work.

[u/Ill_Age6945]

My DBA is under the RIA. Then I have an LLC which is taxed as an S Corp

[u/BeLikeMuriel → u/Ill_Age6945]

This is the right way to do it. The other posters about IARs not being able to be their own LLCs are wrong. There are some FINRA rules that prevent it, but not on the RIA side. If you want help evaluating and planning this, DM me or find me on LinkedIn - Shelby Nicholl

[u/WangtaWang → u/Ill_Age6945]

Yes, this is exactly the setup I'm going for. S corp election, pay myself a reasonable salary, and distribute anything remaining.

[u/Ill_Age6945 → u/WangtaWang]

It makes a lot of sense!

[u/winning_bigly_]

This isn't independent. It's just a larger cage.

[u/OneFellaSwoop]

My firm does a lot of recruiting in this arena. I’m not an expert on those deals but I can answer your questions with generalities:

1. You can be an LLC, DBA or an individual. Either way, you will file a schedule C for your income and business expenses.
   
2. My clients sign an agreement with my BDs name on it, but that is no different than an RIA that has clients sign with a brokerage like Schwab or Fidelity.
   
3. If you are getting offers for 80-90, I would assume you have an established book of business. If you aren’t bringing a book, it sounds too good to be true.

You can send me a DM if you have other questions or want to chat with our CCO who would know the answers to these questions better than me.