Path to the RIA?

So someone asked if I’d given any more thought to the whole 4-years works experience requirement that one needs in addition to passing the 3 exams in order to get the CFA charter.

The answer is… YES! In fact, I think about it almost every day. Unfortunately all this thinking has yet to produce a solid plan.

Problem #1 is that I’ve been self-employed as a freelance engineering contractor since early 2007. I really love the freedom that gives me. As one fellow independent contractor put it, If I want to take a shower with my wife at 10 o’clock in the morning, I do!

Yep, I thought it was a bit of an overshare too…


Problem #2 is that I’m an only child. Did I mention how much I like having it my way? All day, every day?! Things are not usually so in cubicle-land of the eternal fluorescent sun.

The difficulty with the CFA work experience requirement is that it has to come from full time, paid positions.

The big picture points to the majority of people fulfilling this by actually working as a portfolio manager or analyst at some company, with a small percentage of professors filling the bill with their university teaching and research.

Now just as a weaselly wascal can read the tax code and come up with all sorts of ways to write off personal purchases as business expenses, the same twisted thinking can be applied to the work experience requirements. Does blogging full-time about investment techniques and the CFA program for 4 years qualify me as an educator? What if I also find 3 friends to give me $1000 to manage at the same time? Would it all add up? Probably not…

So I still don’t know how the work experience is going to shake out. But just as it can never be a bad idea for someone interested in investing to sign up for the CFA program, I’m now thinking that I also can’t go wrong by taking the steps to become legal to manage other people’s money. What if a plethora of friends and strangers materialize with dumptrucks full of money such that I could both financially and truthfully transform overnight into a full-time, paid portfolio manager working from home – ticking off the CFA work experience in flip-flops and jeans!

The laws vary from state to state as to what is required, and as usual government websites leave me with more questions than answers, but it appears that one path for an individual (i.e. no corporate sponsorship) is to pass the Series 65 exam and then become a Registered Investment Adviser. In fact, I hear that many attorneys and CPAs get their Series 65’s so that they can offer investment services to their already well-established client bases.

Though the Series 65 exam is described by the organization that oversees the test as “rigorous” I’m guessing that with a little preparation it would be about as difficult for a CFA candidate as Coast Guard basic training would be for a Navy SEAL. Once you pass it seems you have 2 years to register as an RIA before you’d have to take the test all over again.

And the RIA registration is the daunting part. It seems complicated to file, rules and paperwork to keep in order, compliance to be maintained.

And do you remember that passage in the Level II CFA study guide about an RIA being fined $100,000 due to not having a statement detailing how oversubscribed IPO shares would be divided between clients? No, not fined for violating their statement, just not having one! This is high stakes!

Is this worth doing to manage $1000 from three friends?! That is after all, the higher probability – at least initially.

Truth be told, I have a way of making a mountain out of a molehill. When I wanted to become a freelance engineer I remember approaching my CPA and telling her I’d pay her to do the paperwork to get an LLC started for me. She graciously refused and told me to just go the Florida Division of Corporations website, print the PDF, and do it myself because it isn’t rocket science. She was, of course, completely correct.

If you’re searching the web for RIA information you’ll definitely be hit by a few ads from places that are happy to do the registration grunt work for you for a fee. I haven’t decided to go with one of these yet, but if I do, I’m leaning towards these guys as they really seem to know their stuff. They kindly provide a lot of information for free in their FAQ. A real miser could read it and perhaps learn enough to do it all himself – or at least skip some of the bigger mistakes. They’re not cheap (starting at $2,295) but when I subtract my opportunity cost it becomes more reasonable.

The key before pulling the trigger on all this is learning how much work and wampum is required to stay an RIA once you jump all the hurdles to become one. My LLC requires only an annual fee pay over the web, nothing more. And I’m not saying that it wouldn’t be fun to work again in an office. But still, 10 o’clock… the shower… you get what I’m saying.

Level II Exam preparation tally:
Read/Work Problems of Volume 1: 26 hours
Read/Work Problems of Volume 2: 15 hours
Read/Work Problems of Volume 3: 13 hours
Read/Work Problems of Volume 4: 32 hours
Read/Work Problems of Volume 5: 19 hours
Read/Work Problems of Volume 6: 29 hours
Re-work All Problem Sets a 2nd Time: 68 hours
Do Practice Tests & Understand Wrong Answers: 18 hours
More Re-working of Problem Chapters: 14
Total Preparation Time So Far: 234 hours

11 thoughts on “Path to the RIA?”

  1. just stumbled onto your blog through another cfa blog. read a few posts from your level 1 experiences.

    i was wondering if you took the mock exams offered by the cfa for level 1? also, if you took them, what was your opinion on the cfai mock exams? comparing them to the real deal.

    kind of followed your path of sticking with the cfa books and just using their materials. at this point, i feel like all the cfa materials is not enough for me to pass level 1. i’m able to complete the end of chapter questions and i’ve gone through them a few times. at this point i’m not sure if i’m just remembering the answer from the choices or actually understanding the material.

    the sample and mock exams, from the cfai, have not treated me nicely, hence my name.

    looking forward to your response.

  2. hey headache!

    for level 1 i first read all chapters and worked all problems. then in the middle of making a 2nd pass through all the problems (which I never completed) I did the online sample / mock exam(s) that you get for free when signing up for the program. i scored poorly on these – like less than 60% (see this post) and in hindsight they did seem representative of the real test. somehow i managed to pass though! good luck!

  3. Hello Lumilog…

    I’m new to this site, but have found it quite helpful so far. I am a geologist working in the mining industry and work on project evaluations, cashflow analyses, etc. I’m thinking of entering the CFA program soon.

    I too am a bit concerned regarding the work experience requirement. The description on the CFA Institute website state:

    1. Four years (48 months) of work experience in …
    2. A full-time position consisting of …
    3. Qualifying activities, such as:
    a) Evaluating and applying financial, economic, or statistical data involving securities or other investments, or producing work that adds value to the process
    b) Supervising persons who practice such activities
    c) Teaching such activities

    and that:

    Qualifying activities include being:
    a)Directly involved in the investment decision-making process
    b)Engaged in responsibilities and/or producing a work product that informs or adds value to that process

    I am banking on 3a above that states “producing work that adds value to the process”. I’m thinking that my work in project evaluation, discounted cashflow analysis, etc will qualify as experience!

  4. Other than the path of RIA, did you explore positions like Corporate Financial Analyst? May be an interesting position in a corporate world than being an Accountant or an Auditor.

  5. Thanks for the recommendation. Ideally I’d like to stay working for myself. I did read on one website that there are waivers of some sort for some states if you only have a handful of clients. Need to check on that…

  6. I have a question.
    I worked as a full time employee in a software company for almost two years and now have been working in Tax for two years. Can this we counted as 4 years of professional experience to write CFA level 1?
    Also, if not, can I write CFA all levels and by the time I finish all levels, I will have 4 years of finance experience?
    Thanks in advance

  7. Hi Vivek – unless something has changed you don’t need any of the 4 yrs. work experience to start the CFA program in terms of taking and passing the 3 exams. But you won’t get the formal CFA designation in hand until you complete the work experience part too. As far as how much of your previous work experience counts you’re probably better off emailing the CFAI and asking them – they’re usually very good about writing back. In the mean time here’s the general link re: what counts towards the 4 yrs.

    CFA Work Experience Requirements

  8. I am a full-time working zombie. I like to eat brains and as well as give advice to my fellow zombie concerning investments. We tend to live for a long time as zombies and … oh must go, some human is walking down the street.

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