Setup to be a Registered Investment Advisor.

This first section explains WHY you should consider permanently firing your Broker Dealer, and FINRA, and then becoming your own Registered Investment Advisor. How to do it is on the bottom section.

In a nutshell, this is about giving up being paid via commissions (commission-only and/or fee-based) and switching to fee-only. This means you'd get paid by charging your clients' fees directly for your financial planning and investment management services. You would then have to give up all forms of commissions, including mutual fund 12b-1 fees (usually).

You basically just fill out a few forms and pay a few hundred bucks to your state's finance department.

Being an RIA costs a small fraction of the work, time, and money compared to dealing with a Broker Dealer to be a Registered Representative of FINRA. The only real disadvantage is that you won't be able to earn commissions (or 12b-1 fees) anymore.

Some say an advantage is that you get "supported" via a BD. But the vast majority of that support is mostly for things that you'd only have to endure and waste resources on if you're a FINRA rep - like compliance. Actual support for the hard things that matter, like prospecting, are all virtually non-existent. So you'll need to get to the bottom of what kind of "support" you'll get to see how valuable a BD relationship really is. Some people get to be mentored by truly great salespeople, so missing out on this rare gold nugget would be a disadvantage, if you were your own RIA. A guesstimate is that "BD support" includes things of actual value less than 10% of the time. Only you can decide if what they offer has value or not.

If you're already a BD rep, this means it may take a while to be weaned off the unpredictable series of one-time pops of relatively big short-term money. This means expenses usually exceed income until enough clients are signed up. But once you have $5 million under management (@1% is $50,000 per year of income), life is a piece of cake compared to being a FINRA rep through a BD.

Starting out being fee-only results in a relatively small, but long-term, stream of predictable income that grows over time. Usually what happens when you "make a sale" is you get someone to transfer their investment account to your custodian. Then you charge upfront fees every quarter of around 1% of the total amount of assets you'll be managing. So if you make a $100k sale at 1%, all you're going to get initially is ~$250 when the paperwork goes through. If you were a BD rep, then you could make as much as $3,000 initially - but that's it. Other than the few bucks in 12b-1 fees that trickle on over time, you won't get paid again. As an RIA, you'll make ~$250 at the beginning of ever quarter, right on schedule, until the client "pulls their account" (fires you). You'll usually automatically get paid monthly or quarterly from investment management fees, and then you can also get paid randomly when you charge by the hour (or per job) for financial planning. This is basically the difference in how you'd get paid.

The RIA Model is the way of the future. The BD model is the way of the past.

This is what life insurance companies will do to you if you're not paying attention

The industry is still trying to squeeze the last buck out of an obsolete business model (as you can see by AIG and Merrill Lynch going under in September '08, and over 100,000 brokers being laid off from firms like UBS in 2009), which is maintaining many small commission-based clients, lots of transactions, conflicts of interest, high-risk of getting into trouble, massive amounts of paperwork/service work, dependence on American Funds and life insurance company products, and being captive to the never-ending parade of annoying time-wasting expenses of FINRA and a Broker Dealer - just in order to earn commissions and 12b-1 fees.

Some generic info FYI: There are three generic independent advisor models:

• Pure RIA: This is a 100% fee-only model using independent RIA custodians. Most of the time, you are totally on your own here.

• Open-hybrid Model: This is where the RIA is also hooked up to an independent Broker Dealer. The main attraction here is the ability to be a fee-based money manager, and still be allowed to earn commissions and trailers (12b-1 fees), which are technically commissions. Here you are sort of on your own, but are still controlled by the BD.

• Closed-hybrid Model: This is where the RIA affiliates with a traditional BD that supports RIAs, but the BD uses only captive products and services (e.g., Ameriprise), and won't let the RIA use most anything outside of the BD. This is the opposite of being totally on your own.

Why Become Your Own Independent RIA?

The main reason why the BD / FINRA world is so terrible to work in, is because there's a bazillion ways to cheat clients to make commissions. As a result, the regulators (FINRA and BD compliance) have tightened the screws on everyone to the point of it being unbearable. As you may know, the endless parade of frivolous rules that makes it harder to do business just gets worse every day. Every time a broker rep figures out a way to rip someone off to make more commissions, FINRA eventually finds out, punishes the rep & BD, then creates a whole new set of rules and regulations everyone needs to abide by to stay in compliance. This is why there's a never-ending parade of "love letters" from your compliance department on all of the new ways you can't make a decent living anymore.

On the other hand, there are very few ways to cheat clients to make more fees (and the ways there are result in amounts so small that it's just not worth it). Also if the client becomes unhappy they can just terminate the relationship. Then they'd get a refund of pre-paid fees, and the advisor no longer gets paid. Because of these differences, the amount of regulations are only a small fraction in the RIA fee world compared to the commission world.

The benefits of being your own RIA:

• You can disassociate yourself from FINRA! That's right NO MORE FINRA anything, forever! This means much less wasted time, no exam passing or continuing education annoyances, and eliminating ALL of their expenses, regulatory paperwork, expensive BD E&O insurance, several forms of real risks, U4 & 5's, surprise audits, correspondence, and bureaucracy.

All you have to do is stop being a "Registered Representative of FINRA," and they're totally 100% fired and out of your life forever.

This will save you many hours per week of wasted time. You'll also sleep better and your blood pressure will be lower knowing you and your practice are a lot safer. Plus, over time, you'll save more money than it costs to be an RIA.

Depending on your state, you may still need to pass the FINRA Series 65 or 66 exam. But this is nothing compared to passing and maintaining a Series 7 General Securities License.

• You can disassociate yourself from having to be hooked up to, controlled by, and giving tons of your money away to a Broker Dealer. That's right - NO MORE BROKER DEALER! Yes, that means NO MORE COMPLIANCE people, forever!!!

You'll still have to abide by your state and SEC's compliance manual, but it's nothing compared to FINRA and a BD's compliance department. See for yourself by going to the Financial Planning Association's (FPA) site and download their compliance manual, which may end up being the one you'll use.

Unfortunately, BDs don't care much about you. Because of the high turnover in this business (less than 10% of new reps are still with the same BD three years later), all they care about is sucking as much life and money out of you as possible, while covering their behinds as well as possible. BDs are a profit centers, and you are their biggest source of revenue.

This means you have to pay for everything (one way or another), and anything that goes wrong, they'll do everything they can to make it all stick only on to you.

As you probably already know, they treat you like you work for them. In reality they work for you. You are the one doing ALL of the work needed to make money. Then they keep a huge part of it. This is how YOU PAY THEM. They don't actually do one thing that makes any money. They maintain the necessary services for you to make money, but you're paying for that, and their cushy offices, and their incomes, benefits, and vacations. All they do is cost you money. Try to get them to understand this concept and see what happens!

The relationship between the Registered Rep and the Broker Dealer is one of the most lopsided arrangements ever created. Over the last few years, BDs narrowly escaped having to pay reps salary for the massive amounts of overtime they work (read more about it here and here). Hopefully someday more equity will be legislated into this arrangement.

For the vast majority, being a BD rep is a terrible deal compared to being your own RIA. All you need to do is weigh the pros and cons to see.

BDs are a creature of the whole typical American capitalism deal. This means: First, the whole deal was set up and funded by the few people at the top of the food chain for one and only one reason - which is to make them, and only them, rich. So their primary concern is always going to be to protect their investment that went into building the business. Their next concern is avoiding legal troubles (which is why one of the owners, and/or primary stockholders, is usually an attorney). Their next concern is how much money they can squeeze out of the operation and funnel into their personal checking accounts (while paying the worker bees as little as possible in salaries and benefits, of course). Their next concern is for the employees of the BD that actually do the work. Concern for you, your life, your family, and your career are at the bottom of the list. This is especially so with life insurance orientated BDs - you're basically the newest serving of fresh meat that has about a 10% chance of surviving over a year. Agents and reps come and go monthly, so they don't care. All they care about is how much of your life they can suck out of you while you're temporarily stuck helplessly bleeding on their meat hook. Once they feel they've sucked as much life out of you as they can, then you're "terminated" to make room for the next serving of fresh meat. If you think this is a harsh analogy, then either ask someone that's been freshly terminated (so they'll remember all of the details), or you can play the role of their prey and find out firsthand yourself!

Other benefits of not having a Broker Dealer are:

Nobody tells you what to do, when to do it, what not to do, or how to run your practice.

No more "payouts" or giving any of your hard-earned money away to anyone. You keep 100% of the money you earn (unless you join an RIA firm).

There's no more corporate culture disseminated from the top that's designed to maximize shareholder value. This leads to arranging the rep's compensation structure to favor products that will most efficiently reach this goal. This leads to sales meetings where management focuses on how to get reps to peddle the most profitable products to opportunities (clients). As an RIA, you're free to make the client's best interest the goal, not maximizing BD shareholder value.

There will be no more "mistakes" when calculating your paycheck. Isn't it convenient that every time there's a "mistake," the result is you get paid less and the BD keeps more money than it should have? Whenever this happens you have to waste time fighting yet another battle to get your money back. Then, sometimes you don't even win (you just have to live with people that rip you off).

No more sales quotas or constant fear of being "terminated" (fired) for not producing enough. Even if you sell enough, you're still at risk for not selling enough of your BD's pet investment products, that make only them the most money (American Funds, whole life insurance, fixed, and variable annuities).

No more pesky branch or sales managers that want to keep track of everything you're doing all day, micro-managing your activities, and are always giving you grief about why you're not selling more.

No more being lied to constantly by your BD and not being able to trust anything anyone says.

As an RIA, you can take time off whenever you want, without having to ask anyone for permission, and even have a whole lean year. Try doing that as a BD rep and see what happens (even if you meet their sales quotas - the first thing they'll do is give your office away to fresh meat that's more "ambitious").

No more being limited to only using financial planning and investment management software that's approved by your BD (because they kickback money or other goodies in exchange for only approving their software).

No more being stuck using only expensive, time consuming, ineffective, limited, and inflexible financial software. This means you'll have the capability of doing whatever you want when it comes to financial planning and managing money for your clients. With our software, you can perform several times more tasks that clients want, and get the job done right, compared to even the most expensive BD financial plan software. As an RIA, you can use the right tools to do the jobs, and there's nobody around to say you can't do that.

No more BD audits or fear that someone from FINRA or BD compliance will just show up at random at your office wanting to waste days of your time inspecting all of your files doing nothing but looking for ways to get you into trouble. Just like most everything else in the FINRA / BD world, only bad things can come from this (what possible good could come from an audit?).

As an RIA, the state may show up, and if you manage over $25 million, then the SEC may show up to audit, but it's not near as frequent, and is a piece of cake compared to a BD / FINRA compliance audit. Plus, if you manage any real money as a BD rep, then BD compliance, the state, FINRA, and the SEC will all show up to do surprise audits. So when you're rich and famous, then you're eliminating three out of the four entities that will show up to audit as an RIA.

No more censorship, editing, approvals, or being told you can't say, send, mail, write, or publish that. As an RIA you're able to write, say, send, publish anything you want to prospects and your clients in personal letters, e-mails, newsletters, marketing seminars, promoting new services, etc., without anybody else being involved (nor without having to spend $15 to $25 every time compliance edits a letter). No more having to wait up to weeks just to get a simple letter approved and sent to someone. No more having to waste time on keeping detailed records on what you sent to whom, when, what went with it, and all that.

No more having to have your e-mail routed through your BD's censorship screening server, where someone has to approve it before it gets passed on to you or sent out. This means getting e-mails immediately instead of dealing with delays that could take days.

No more being afraid that just someone's "tone" in an e-mail may constitute a complaint. Just one whiny client e-mail about your BD not sending a tiny client their statement on time could have an endless parade of serious repercussions. All "complaints" need to be kept forever in a file folder in your office, brought to the attention of your Broker Dealer, which then has to submit it to FINRA, which then goes on your permanent record. Not going through all of this by ignoring or not filing hard copies of e-mails properly will get you into even worse trouble. The only way around this trap is to just not do e-mail at all with clients (which is what we did when we were a rep). That's no way to prosper in the 21^st century.

You can make and maintain your own website, and be able to say and do anything you want with it (without having to be FINRA securities licensed in all 50 states, and then having it be "approved" in all 50 states by compliance).

No more worrying that the BD will steal your clients if you leave them for another BD. Even if they don't, you'll lose thousands of dollars and hundreds of hours of time during the month's-long block transfer process. You'll have to send all your clients change of BD update letters, and then hope they get around to signing it and returning it, so you can get paid from them again. The old BD keeps your money until they do.

This nightmare is compounded several times if you switch custodians too (e.g., moving accounts from Pershing to Schwab). Not only is your old BD going to do everything they can to keep your clients, and pass them off as "orphans" to their rookie reps, they're going to stall the block transfer process as long as possible to keep as much money as they can, just to "punish" you for leaving them. BDs are in a constant "state of war" with each other over retaining reps, so they will punish you all they can if you defect to the "enemy." Then there is fixing all of the "mistakes" the BD will create to try to keep as much of your money as possible for as long as possible.

Because it's such a major ordeal switching BDs, you're usually stuck like a fly on flypaper. They know it and exploit it every chance they get. It's much easier to leave your BD, keep all of your client accounts with the same custodian, and just delete the BD flag from the account and replace it with your RIA.

You can eliminate all conflicts of interests with your clients when you only charge fees. Forget about being coerced into doing bad things you don't want to, like abusing American Funds and life insurance company products. Being an RIA allows you to work with no ulterior motives.

No more BD limitations on how you manage money for clients. No more worry that you can't make a trade because of churning. You can also forget about having to pay attention to every mutual fund breakpoint, out of fear of violating those rules.

Kiss not having full discretion goodbye forever too! If you think something needs to be sold now, you can do it now only if you have full discretion. Few BDs give their reps full discretion.

This means you'll have to send your clients a form that needs to be signed and returned authorizing the trade, or a phone call needs to be made getting their permission. All of this then needs to be logged, filed, and stored forever. By that time, they could have lost money when it could have easily been avoided.

Just wanting to sell one investment in all of your client's accounts could take weeks. Money can't be managed well like that, so their performance is going to suffer, which makes you look bad.

As an RIA, you always have full discretion. This means you can make any trade you want to, whenever you want to. You can execute asset allocation rebalancings without having to get permission because there's nobody looking over your shoulder scrutinizing every trade. All this is critical if you want to make a living managing money.

No more being at risk that some stupid little mistake (that you had nothing to do with and was all your assistant's fault) will put a bad mark on your U-5, resulting in thousands of dollars in fines, being suspended, or losing your licenses or even your career.

We've seen a top producer's life brought to an end just because his assistant accidentally deposited a $34 check into the wrong bank account (which led to the next paragraph). He ended up being his own RIA after a year of lawsuits and having no income in BD limbo. Even though things were bad for a few years, he's way better off now than he would have been if the incident never took place.

No more worry that an inter-office power struggle may turn an insignificant event into losing your practice. We've seen it happen several times where one rep will turn in another because they want to be the alpha dog. Then they fire the old dog and keep decades of their life's work for themselves.

It takes years and dozens of thousands of dollars in legal fees fighting off these kinds of disputes. During this time you'll be in BD limbo, meaning you can't make any money - even from your existing clients. This is because once you're terminated from one BD, and/or you have a bad mark on your U5, it's going to take a miracle to get hooked up with another one. This is even if what they said to FINRA to get the bad mark put on your U5 is groundless, fabricated, or entirely their fault.

Every time we've seen this happen, even if the rep wins, dozens of thousands of dollars and hundreds of hours are wasted. In the mean time, you could be unemployed for months. Then you can't even collect unemployment insurance, because you were not an employee (you were an "independent contractor")!

Then even if you win, and it turns out to be all the branch or BD's fault, you can't sue anyone for wasting all of these resources. BDs know they have all the power (and the lawyers), and they know they can abuse it to screw you over the moment they don't like you anymore (or they see an opportunity for a power grab, or just profit). It makes no sense to let someone have this much power over your life, just so you can collect commissions.

No more never-ending parade of "love notes" about new compliance regulations, rules, office procedures, reminders, warnings, cautions, memos, do's and don'ts, and things that just end up sucking more life out of you without providing any benefit.

No more time-wasting (branch / compliance / product / sales / wholesaler / marketing) meetings.

No more having to explain every little thing to branch or sales managers that are too stupid to understand details about anything.

You're also able to eliminate mutual fund and life insurance company wholesalers that call all the time and/or just show up trying to get you to use more of their product. Try telling your branch manager that you don't want to meet with their American Funds or pet life insurance company wholesaler and see what happens! All of these meetings can add up to over fifteen hours per week of wasted time.

No more being gouged on overly expensive, or worse - useless, Errors and Omissions insurance because you're stuck with only the BD's carrier. The average cost of E&O these days for a registered rep is $2,500 per year. And then there's usually a $75,000 deductible! Because you can shop, RIA E&O costs less than half - with more coverage and less than half the deductible.

No more having to only employ expensive people that are FINRA licensed and can pass all of the harsh screening criteria of your Broker Dealer. This could save you dozens of thousands annually in wages and hundreds of hours annually in employee turnover.

People that are squeaky clean and have all of the needed resume bullet points and licenses demand top dollar, even if they're mostly useless. Then if they have any smarts, they'll move from one job to the next to advance their careers, and/or will try to steal yours.

As an RIA, just hire your talented, loyal, and trustworthy friends and family for much less instead. This is the only way to get people to stay long enough to make all of the time you spent training them pay off (and to ensure your biz stays in the right-hands if something happens to you).

No more being harassed about other things you (or your spouse) do on the side that may or may not even make money (BD and/or FINRA restrictions on "outside business activities"). Everyone is free to do whatever else they want to make money and/or have fun when their off-duty, when you're an RIA.

No more background checks, corporate spies, or investigations prying into your personal life just looking for ways to get you into trouble.

Most BDs will try to steal your intellectual property (things like software or other tools you've made) when you leave. It's probably right in your contract that anything you "invent" to make anything better is automatically theirs, even though you were not even an employee! How's that for a lopsided deal?

As an RIA, you can even keep your day job while you grow your fee base part-time at your own speed. Most everything you do will invoke the standard response from FINRA and the BD, "You must stop doing all of that immediately, or you're terminated!"

If you're not 100% with their program, so they can suck ALL of the life out you, then they don't want you. If you choose to hide a day job, and they find out, then you're fired, fined, and banned. With BDs everything is always, "My way or the highway!"

Fellow RIAs cooperate with each other more, whereas BD reps don't because they see each other as the competition (for the prizes won at sales contests).

• Because commissions decline every year and regulations and expenses increase every year, the commission world is shrinking as more people wake up and catch on.

The number of FINRA reps fell more than 50% between 2000 and 2006. About 1,000 reps got laid off per month from large brokers like UBS in 2009. Because nobody in their right mind wants to hear about stock trading or investing in perpetual down-to-flat markets, reps were literally starved out and had to go back to their old day jobs. The number of RIAs more than doubled during that time, and their fees kept rolling in right on schedule.

According to a 2006 Cerulli Associates study, assets under management with advisors that custody with Schwab Institutional increased at an annualized rate of 23.1% since 2002; and only 9.8% under brokerage firms.

According to a 2006 RIA Benchmark study done by Moss Adams, investors have had extremely positive experiences with their independent advisors - boasting a 97% client retention rate. 90% indicated they were comfortable providing referrals.

49% of independent advisor's new clients came from full-service brokerage firms in 2006. 75% of them said they left because of high-risk performance-chasing, overreaction to news, overconfidence, and their broker didn't have Investment Policy Statements that were aligned with their goals.

Other complaints from 60% were high expenses, a disproportionate number of proprietary products, and overweighting in a single sector or stock.

BD reps have around 95% failure rate in their first few years. Clients don't like having a different rep every few years. Clients hate BDs / FINRA too, and will like you more as an RIA. The more they like you, the more money you'll make.

Fee-only is the way of the future, and is your natural evolution if you're any good at what you do. Forget the feast and famine way of life that is commissions.

• Being fee-only is the best way to grow a predictable stream of stable income that's needed to survive down and flat markets, vacations, hospital stays, disability, or anything else that may come up that takes you away from work.

Commissions stop the moment you stop prospecting. Fees continue to roll in even if you're out for months.

• Fees are the only way to win when the game is over: You'll be able to either work part-time, or get a great price for selling your book of business when you want to retire.

If you have $20 million under management at 1%, you'll get ten times the money if you sell compared to having $20 million of commission-based mutual funds, where all you're getting is ~0.1% in 12b-1 trailers.

This is where the big payoff is. You can never be free of production quotas when you're with a BD. Which means you can never retire without giving up your life's work, or selling it for pennies on the dollar.

The BD is going to suck every ounce of life out of you until you drop dead, and then make it so your family doesn't get squat (because they'll keep all of your clients so they can pass them off to their new rookie reps as orphans, instead of letting your family sell the business).

Being an RIA is just about the only way you can wind down your career at your own pace, then sell it so you can retire, giving your family something when you pass away.

• The freedom to remove most all limitations, expenses, restrictions, complexity, annoyances, and stupidity from your business will enable you to concentrate on providing maximum value for your clients.

Too many cooks spoil the broth. Once you know what you're doing, you'll see that you don't need anyone for anything (other than a custodian and an assistant). The fewer people messing with your biz, the better off you'll be. Firing your BD and FINRA is like losing 100 pounds overnight.

Being able to give clients what they want and need is the only way for YOU to prosper. The only way to prosper long-term in this business is to wear a "White Hat" and give people what they want for a reasonable fee. Our financial plan software is the best "White Hat" way to provide real value that clients will be happy to pay fees for - and will for decades to come. Providing services of value is also the only way to get quality referrals that become paying clients.

The commission-based world is all about wearing a "Black Hat" while struggling to force a round peg into a square hole - selling high-commission products and trades, life insurance company products, financial plans created with estate planning software, and using American Funds. According to most BDs, these are the only solutions to every need, goal, concern, and objective every client has, every time, no exceptions. If you're always wearing the commission Black Hat, clients will eventually leave when they figure it out.

Read the short version of estate planning and estate planning software

• You're a true professional when you're a fee-only financial planner or investment manager. The only things you sell are yourself and your valuable services. When you're a BD rep, you're always a salesperson first, because you need to constantly sell, sell, sell to feed your family and meet your quotas.

You'll also have much more job satisfaction and self-respect when you don't have to peddle product for a living.

Why Life Insurance BDs are the Worst of the Bunch

Now you know why BDs try so hard to get you join them. Once they get you to sign up, they have you firmly in their trap, and it's very hard to escape. The longer you stay, the harder it is to leave, and the more screwed you become.

So you should get out ASAP and become an RIA, even if that means taking a day job for a while until you can build a book of business.

We don't have anything to do with becoming an RIA. But once you are one, we have the best financial spreadsheets needed to actually do your jobs. If you're a brand new RIA, then you may qualify for the New Financial Planner Starter Kit.

We recommend that you check out TradePMR in addition to other trading custodians. They specialize in the RIA market, a lot of our customers have been using them, and are very happy with them. We have yet to hear any whining whatsoever about their services (and there's constant whining about the big players like Schwab, TD Ameritrade, and Fidelity - mostly because of their limited list of mutual fund availability. Why they can't "get with the program" in the second decade of the 21^st century is still a mystery).

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How to Become Your Own Registered Investment Advisor

We've been working out deals with RIA set up consultants to find the best people to help you set up your new RIA (depending on your state), and have had to fire two so far (and didn't hire one other so far).

Please note that these attorney fees range from ~$1,200 for the basic RIA setup package, to ~$2,200 for the "deluxe deal," so please don't inquire unless you're prepared to spend this kind of coinage within a few months or so.

Also, for around $1,200 existing RIAs registered at the SEC level can be switched to the state level.

Send e-mail to get started with your free initial RIA setup and compliance consultation by a very experienced attorney that does this work every day

Once you've paid our RIA setup consultant, then you can get the T4$ Money eBook for free, plus 10% off everything on this site.

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