Best Broker Registration for High Net Worth Clients
When serving high net worth clients, there are a few things you should do differently than with other types of customers. Spend more time building the relationship and communicate with your high net worth client so they feel like you genuinely care about their financial well-being.
RIAs have a fiduciary duty to their clients, which requires them to put the needs of their clients first in all aspects of their business operations. This includes providing appropriate financial advice and abstaining from conflicts of interest when doing so.
RIAs must register with either the Securities and Exchange Commission (SEC) or their home state's securities regulator in order to operate. Smaller firms that manage less than $100 million of client assets usually remain state-registered, while larger firms serving clients across fewer than 15 states usually need to register with both bodies.
In addition to obtaining a FINRA IARD number, state-registered RIAs must also meet minimum net capital and surety bond requirements. While these specifications differ by jurisdiction, they all play an essential role in guaranteeing that RIAs possess enough financial resources to defend both themselves and their clients in case of legal claims.
Though these requirements may appear straightforward enough at first glance, they have the potential to have a substantial effect on RIA owners' profitability. Therefore, it's essential for RIA owners to comprehend these rules thoroughly so they can make informed business decisions and fulfill their fiduciary responsibilities to clients.
Many states require RIAs to file an Application for Registration with their home state, along with a financial statement and form of ADV. This document contains details regarding the RIA's business practices, experience, fee arrangements and billing terms.
Custodians, as the broker of record for RIAs' client assets, are essential members of the RIA team. They manage all client portfolios and securities holdings while ensuring the RIA meets all regulatory and state filing requirements.
To help RIAs meet regulatory obligations, some states require them to obtain a custodial license. This license enables them to accept custody of client assets and manage them on behalf of their customers. Typically, this requires passing either the FINRA Series 7 or 65 exam, or having another equivalent designation like CFP or Chartered Financial Analyst.
Utilizing an RIA-specific custodial platform can simplify your tech stack and reduce overhead, delight clients, and expand your business. With a modern RIA, you can conveniently track investments, access personalized data, and monitor overall net worth from one central location.
If you need financial advice about investments, RIAs are an excellent option. These firms possess the necessary expertise and resources to assist with any stage of life. Furthermore, RIAs adhere to a fiduciary standard which means they have an obligation to you and will advise in your best interest.
Fees charged by RIA firms can differ considerably. Some charge a flat fee, while others provide a tiered system that decreases as your account balance grows. It is important that you select an RIA with a fee structure that meets both your needs and budget.
Many RIAs charge a percentage of assets under management (AUM), which can be costly for high-net-worth clients. According to Advisory HQ News Corp's study, the average fee for $1 million worth of assets was 1.02% - amounting to an annual cost of $10,200.
In addition to fees, RIAs typically incur expenses related to their fiduciary duty. These include hiring research departments, paying staff to abide by regulations and documenting client transactions. They must also employ and train personnel in wealth management, compliance and ethics, according to Garrett. He further emphasizes that RIAs often pay high fees for broker-dealer and TAMP platforms which could offset some of these expenses.
Additionally, many RIAs are providing banking services to their clients. This can be a lucrative revenue stream for them when combined with other services they provide such as investment strategies.
Banking services remain a popular choice for RIAs, particularly younger and wealthy clients who desire to consolidate their investment and banking needs. Banks continue to develop digital-first solutions that can be seamlessly integrated into an advisor's workflow, suggesting this trend will only grow stronger over time.
RIA Portfolio Management
As the number of high net worth individuals and families grows, more are turning to professional financial advisors for assistance managing their wealth. They seek someone who will invest their funds strategically in order to meet their objectives, as well as one who provides them with comfort when receiving advice.
Due to this shift, many firms engaged in investment management are altering their business models to better suit their clients' requirements. One example is RIA portfolio management, which may be ideal for high-net worth individuals looking for an alternative to mutual funds and ETFs.
RIAs typically generate revenue through a management fee, which is usually composed of a percentage of assets held for clients. This fee may be set at either a fixed rate or as an hourly charge depending on the level of services provided.
Due to their fiduciary responsibility, RIAs must act in their clients' best interests and disclose any conflicts of interest. That means if you're working with an RIA, they will always be on your side when it comes to helping meet financial objectives.
According to a recent survey from Schwab, RIAs tend to enjoy higher client satisfaction than broker-dealers and independent broker-dealers, according to more than 1,000 advisory firms representing three quarters of a trillion dollars in custody assets.
Another key factor is the level of experience within their team. Many firms with high client satisfaction tend to employ experienced financial professionals with prestigious designations like Certified Financial Planner(r) or Chartered Financial Analyst(r).
Brokers typically only manage certain aspects of their clients' portfolios, while RIAs provide a much wider selection of services. For instance, an RIA may be able to construct a multi-asset portfolio consisting of individual stocks and bonds which could significantly reduce commission expenses and simplify asset allocation.
The ideal RIAs are highly knowledgeable and dedicated to helping their clients reach their financial objectives. Furthermore, they have a proven record of success. Therefore, research thoroughly before selecting an RIA firm.
RIA Client Relationships
Client relationships are an integral element of an RIA's financial performance. They help attract new clients and keep current ones happy, as well as having an effect on valuation in transactions. RIAs with strong client bases typically command higher multiples than those with weaker client bases.
To build successful client relationships, RIAs must devise strategies that meet their clients' individual requirements. Furthermore, they should utilize technology solutions to further deepen these connections and expand their practice.
RIAs can offer their clients a comprehensive selection of products and services to satisfy all financial demands. Doing so will strengthen their relationship with the firm and enable them to increase their assets under management (AUM).
An RIA's client base may be affected by several factors, including age. Generally, older clients possess more assets and thus tend to be more profitable for the firm to service; however, their asset growth rate tends to be slower than that of younger clients.
In order to effectively service accounts with a younger demographic, RIAs must consider an alternative fee model. Traditionally, fees are calculated as a percentage of AUM; however, this approach may not be feasible for younger clients since many have private company investments that are not included in their AUM and do not generate fees.
Finally, RIAs must be able to determine fees for each client based on the individual needs. This step in the investment process must be conducted thoroughly and individually.
One way to streamline this process is having a dedicated team responsible for managing client data. This group can ensure your client information is organized and stored securely, giving you insight into your clients' objectives and creating tailored strategies tailored specifically for them. This will enable you to better comprehend your clients' individual requirements.
Another strategy for strengthening client relationships is giving advisors more control over the relationship. According to research, those given ownership over their client relationships saw customer disputes drop by 42% as a result of having an added incentive to treat these relationships with great care.