I'm looking for some advice and insight into going about starting an RIA. Background is I majored in econ at a top 15 school in the US, and have prop traded but am thinking about a switch to something that, while very challenging I understand, would be more stable instead of such an eat what you kill type environment, even though I was at some shops that were more specialized (regulatory risk has me concerned, too, even though it isn't HFT-related). I'm in my mid 20s. I have been a big time market follower since the early years of college, and while 'edge' is a strong term to use, I believe I have developed a great deal of savvy about how asset classes operate such as persistence of trends-especially commodities, and also in terms of, while being very pessimistic about this 'recovery', understanding the difficulty in being a bear on equities. With commodities the main thing is it's not 'contrarian' to say, hey, oil was 100, now 60, I should buy. Contrarianism often involves staying with the trend which a lot of retail wannabe heroes refuse to do, as they want to pick bottoms, and even 'scaling in' is dangerous if initiated too soon, not to mention danger of BK with companies as opposed to the underlying commodity, whereas also USO with oil is not a great vehicle to capitalize on an 'inevitable rally from 35 to 50 at least' due to con tango and time it could take.
To get back on topic to the RIA, I think I could carve a niche starting with passing the exams, getting setup with one of these RIA assistance companies/attys, and then set up shop and really specify myself as being somebody who brings very personalized, customized portfolio mgmt and guidance instead of the usual bonds/stocks paradigm depending on age, not to mention conflicts of interest with much of Wall St. I have no interest in the idea of proclaiming I can beat the SPY, (illegal anyway as a fiduciary, obviously). I just think there are people at various stages in their life financially who would benefit and find value in someone who knows the 'heartbeat' of the markets and what counts, and understands TA and its limits, of course, and uses common sense and more broad analysis. For instance, it'd be hard to ride down this market to the bear mkt lows last decade with a stubborn buy and hold mentality after seeing such a rally it has had. I am probably in a camp that says sort of like 'one should own 10% or whatever in gold', one should not totally be out of equities, especially high quality ones that are entrenched and pay dividends through thick and thin, but even with capital gain tax events taken, it's better to sell than just ride things out. Especially people approaching retirement who can't ride it out, and if it does get down again big time, central banks out of ammo practically, and anymore inflationary policy will wreak even more chaos and markets would go up not intrinsically in value but nominally, as gold soars, etc.
And utilizing options to say sell a put on a way oversold more obscure commodity ETF and collect premium and if allocated the ETF, getting it probably in major low territory on historical chart, as is case with many softs and grains right now. A lot of people don't understand there is access to these kinds of less invested classes of assets, through ETFs, and I can help people hedge and diversify portfolios away from just pure stocks, bonds, and the dollar, too, all in major bull mkts for so long, what if 10 yr goes to 5% +, stocks suffer aside from commodity companies, and dollar weakens? So much for 70/30 stock/bond standard 'diversification'. Instead of taking a stab and buying a commodity ETF, selling puts offers a way to get involved and more so be bullish/neutral. A huge run up in a lesser known commodity as can happen in them very quickly, like 50% +, that allows a great margin of safety on other investments, and is thus crucial as a buffer for the portfolio. Commodities are risky but do ultimately have intrinsic value, and while I know the danger is they can keep falling, there are clever ways to get involved with more complex options strategies, too. This kind of thing I feel I could utilize.
RIA-specific, though, I would have zero AUM to start. My plan would be to get word out and hopefully through closer family acquaintances get some AUM going, but otherwise make strategic upfront investments in advertising, and try to get in on any seminars or conventions locally (I'm not in a major financial city, but am in a big metro area, and I think it benefits me not being in NYC or Chicago, which already flooded with finance).
My aim would be to get it all set up, and just start getting probably people with a few million net worth, to go a few 100k with me, and go discretionary ideally, but also could see more so advisory fees although other hourly fees and things like that not as intriguing to me. Obviosuly I would have to know the tax rules and be there for planning type things, like saving for whatever in special advantaged accounts, but primarily my value add I would see as being an asset allocator and in terms of positioning. I digest and analyze a ton of hard core reading material on financial markets in all sectors on hard core blogs, and other sites, and studying market data, and historical trends. I feel like what is given to offer now is one size fits all funds and not enough personalization or people giving advice who don't really understand the adversity that could be faced when these inflationary policies rear their ugly head and markets get volatile like August 24th more frequently. I think on a major time frame, past 30 years or so have been credit expansion and falling rates--unmeritedly (i.e., by fiat) and I think things get a lot rockier as inflationary policy as has been had stimulates mal investment and gluts, but then quickly flips to shortages of supply as producers go belly up, and credit jerks back to tightening, irrespective of the Fed trying to strong arm things) and thus I think the road ahead is a lot rockier.
One specific concern I'd have is getting a chance to actually discretionary allocate funds, as I know so many have 401ks that aren't so discretionary even under themselves, but are in funds. Especially for the people in prime working age, who want to stay in the advantaged status but couldn't have it where I allocate let alone recommend. In other words, the ability to get access to funds reserved for retirement and beyond. I know there are plenty of older people with a lot of funds sitting around that they get discretion over how to allocate, but the working age cohort is another story. And then would I just get a custodian and they handle all the main paperwork other than my prospectus and the standard forms I'd have done up front with the RIA advisor firm?
I see a path to success with this, getting to say 7 million AUM and just under 2% fees, and eventually leasing an office, but just looking for advice if people have some. Especially with the logistics and costs to expect. I know certain investments would be worth it, no doubt, like a good website. The main thing would be getting out my message, as even people who stay with a primary advisor might allocate some of their portfolio under me to protect at least a sizable part of their portfolio, as I can integrate inverse ETFs and un correlated plays to truly diversify, along with options.
To get back on topic to the RIA, I think I could carve a niche starting with passing the exams, getting setup with one of these RIA assistance companies/attys, and then set up shop and really specify myself as being somebody who brings very personalized, customized portfolio mgmt and guidance instead of the usual bonds/stocks paradigm depending on age, not to mention conflicts of interest with much of Wall St. I have no interest in the idea of proclaiming I can beat the SPY, (illegal anyway as a fiduciary, obviously). I just think there are people at various stages in their life financially who would benefit and find value in someone who knows the 'heartbeat' of the markets and what counts, and understands TA and its limits, of course, and uses common sense and more broad analysis. For instance, it'd be hard to ride down this market to the bear mkt lows last decade with a stubborn buy and hold mentality after seeing such a rally it has had. I am probably in a camp that says sort of like 'one should own 10% or whatever in gold', one should not totally be out of equities, especially high quality ones that are entrenched and pay dividends through thick and thin, but even with capital gain tax events taken, it's better to sell than just ride things out. Especially people approaching retirement who can't ride it out, and if it does get down again big time, central banks out of ammo practically, and anymore inflationary policy will wreak even more chaos and markets would go up not intrinsically in value but nominally, as gold soars, etc.
And utilizing options to say sell a put on a way oversold more obscure commodity ETF and collect premium and if allocated the ETF, getting it probably in major low territory on historical chart, as is case with many softs and grains right now. A lot of people don't understand there is access to these kinds of less invested classes of assets, through ETFs, and I can help people hedge and diversify portfolios away from just pure stocks, bonds, and the dollar, too, all in major bull mkts for so long, what if 10 yr goes to 5% +, stocks suffer aside from commodity companies, and dollar weakens? So much for 70/30 stock/bond standard 'diversification'. Instead of taking a stab and buying a commodity ETF, selling puts offers a way to get involved and more so be bullish/neutral. A huge run up in a lesser known commodity as can happen in them very quickly, like 50% +, that allows a great margin of safety on other investments, and is thus crucial as a buffer for the portfolio. Commodities are risky but do ultimately have intrinsic value, and while I know the danger is they can keep falling, there are clever ways to get involved with more complex options strategies, too. This kind of thing I feel I could utilize.
RIA-specific, though, I would have zero AUM to start. My plan would be to get word out and hopefully through closer family acquaintances get some AUM going, but otherwise make strategic upfront investments in advertising, and try to get in on any seminars or conventions locally (I'm not in a major financial city, but am in a big metro area, and I think it benefits me not being in NYC or Chicago, which already flooded with finance).
My aim would be to get it all set up, and just start getting probably people with a few million net worth, to go a few 100k with me, and go discretionary ideally, but also could see more so advisory fees although other hourly fees and things like that not as intriguing to me. Obviosuly I would have to know the tax rules and be there for planning type things, like saving for whatever in special advantaged accounts, but primarily my value add I would see as being an asset allocator and in terms of positioning. I digest and analyze a ton of hard core reading material on financial markets in all sectors on hard core blogs, and other sites, and studying market data, and historical trends. I feel like what is given to offer now is one size fits all funds and not enough personalization or people giving advice who don't really understand the adversity that could be faced when these inflationary policies rear their ugly head and markets get volatile like August 24th more frequently. I think on a major time frame, past 30 years or so have been credit expansion and falling rates--unmeritedly (i.e., by fiat) and I think things get a lot rockier as inflationary policy as has been had stimulates mal investment and gluts, but then quickly flips to shortages of supply as producers go belly up, and credit jerks back to tightening, irrespective of the Fed trying to strong arm things) and thus I think the road ahead is a lot rockier.
One specific concern I'd have is getting a chance to actually discretionary allocate funds, as I know so many have 401ks that aren't so discretionary even under themselves, but are in funds. Especially for the people in prime working age, who want to stay in the advantaged status but couldn't have it where I allocate let alone recommend. In other words, the ability to get access to funds reserved for retirement and beyond. I know there are plenty of older people with a lot of funds sitting around that they get discretion over how to allocate, but the working age cohort is another story. And then would I just get a custodian and they handle all the main paperwork other than my prospectus and the standard forms I'd have done up front with the RIA advisor firm?
I see a path to success with this, getting to say 7 million AUM and just under 2% fees, and eventually leasing an office, but just looking for advice if people have some. Especially with the logistics and costs to expect. I know certain investments would be worth it, no doubt, like a good website. The main thing would be getting out my message, as even people who stay with a primary advisor might allocate some of their portfolio under me to protect at least a sizable part of their portfolio, as I can integrate inverse ETFs and un correlated plays to truly diversify, along with options.
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