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Is Starting an RIA in a Qualified Opportunity Zone Right for You?

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Say you’re a financial advisor working in a private bank. You’ve identified a gap in the market when it comes to serving high-net-worth clients. You decide to build a business to fill that gap. Turning that idea into a reality will require a number of strategic decisions, including how to source capital, where to find the right talent, and what type of legal entity the business will be.  

When it comes to the last point, an often-overlooked option is organizing as a Qualified Opportunity Zone Business. 

That’s the road we took. Until recently, we were a group of veteran advisors who had come to believe that the decadelong trend of efficiency and expense reduction at our respective private banks had made it impossible to properly serve our clients’ complex needs. So in August, we built our own RIA, establishing it as a Qualified Opportunity Zone Business. We located our two initial offices in QOZs in Tampa, Florida and in Dallas.

QOZs were created in 2017 in designated urban areas where economic growth is desired. The societal benefits of this increased economic activity include creating pathways of opportunity for new careers to prosper; the creation of needed infrastructure; and a safer, stronger, generally improved lifestyle to the surrounding neighborhoods. The tax incentives put in place to drive this economic activity are also significant, especially when it comes to capital gains. If you properly invest the amount of such a gain in a QOZ Business, you may elect to defer paying tax on that gain until Dec. 31, 2026. Given the bearish markets we are currently experiencing, that date is less appealing now than when the legislation was put in place in 2017, but deferring payment still provides several years of earning power on an amount that otherwise would have gone to pay the tax. 

In order to raise capital for our new enterprise, we identified several family offices that had recently realized and sizable capital gains that needed to redeploy that capital. One option was to pay the taxes and invest the net. Instead, our investors created their own QOZ Fund and invested directly in our business. In addition to the long-term tax benefits—with patience, they can hold that investment for the requisite 10 years and pay zero tax on that growth, giving them a potential after-tax return that is hard to match—this gives them a direct line of sight into the operations of our company.   

On our end, the patient capital means we are not chasing short-term goals to satisfy our investors but can instead stay focused on the disciplined execution of our strategy. We can also assure clients that we are not locked into the three to five years exit typical of private equity funded investments.

After we established our RIA we set about creating our own jobs, hiring a director of operations, a chief compliance officer, a chief marketing officer, and multiple associates—all of whom accessed career growth opportunities that would not initially be available in large private banks. This has allowed us to establish a succession plan that will ensure our clients and their families will be taken care of by the same team for years to come before any transition occurs. As it turned out, the structure of QOZ rules provided a perfect platform for us to build out our long-term strategy. But it isn’t going to be the right route for every new business.

Waiting 10 or more years to reap the rewards of an investment may not fit with your particular plans, and complying with the regulations and reporting requirements that come with being a QOZB may bring on more complexity than you are willing to accept. It’s also worth considering that capital gains rates could increase before the end of 2026. But for advisor-entrepreneurs considering starting their own business, we think the benefits that come from organizing as a QOZB are well worth exploring.


Photo Illustration by Staff; Courtesy of Fidelis Capital

Rick Simonetti is founding partner, CEO & Head of Wealth Planning at Fidelis Capital. Previously, he spent 22 years at Wells Fargo Private Wealth Management as senior managing director, Southern Region, and as National Head of Wealth Planning.

Credit: marketwatch.com

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