There are myriad steps breakaway brokers must consider when opening up their own firms. Tom Giachetti, a partner with the law firm Stark & Stark in Princeton, New Jersey, detailed the steps breakaway brokers should take during a recent conference call.
What type of firm do you want to start? When deciding whether or not to become an independent RIA firm, advisors should first determine whether they want it to be a sole proprietorship, corporation, or limited liability company. I prefer a corporation or limited liability company, and whether or not you form a corporation or limited liability company will depend on state law considerations and different tax considerations.
What are the registration requirements for the advisor? Whether you’re a registered rep, former wirehouse broker, or independent broker who now wants to become the principal of an independent firm, you have to pass a test in most states, and in most states you’ll also have to register as an investment advisor representative of the new firm you’re creating. In most states you’ll need a Series 65 or Series 66 exam, although in many states there are exemptions for certain designations like CFA, CFP, and in some states CPA, and attorney.
How do you register the firm? Advisors can register the firm with the state or with the SEC. Firms with assets of less than $25 million register on a state level. Firms with more than $25 million may register with the SEC. Once firms reach $30 million and over, they must register with the SEC.