Whether you're a veteran financial planner looking to get out from under a tyrannical boss, or a rookie just out of college, the dream of starting your own financial services firm is probably an aspiration that gets you out of bed on even the rainiest of days. Money, autonomy, convenient office hours and recognition within the community all come as part of the package, at least in our dreams. In reality, starting a financial services firm is a lot of hard work. Those who fail are often those who fail to plan. Read on as we explore the tips you need to know in order to turn your dream into a thriving business reality.

Growing Demand
While the 2008 financial crisis has made the job market an increasingly competitive place, one of the few careers estimating growth and relevance is that of a financial advisor. The age of your average financial planner/advisor is increasing, along with the ages of his or her client base. With that, more planners are leaving their practices while more potential clients are entering their retirement years. Furthermore, this changing of demographics in the American population is rapidly opening up new areas of specialization, such as long-term care and alternative investments. The most recent generation of financial products and services also allows advisors to meet the needs of clients in ways that could not have been anticipated even a few years ago. With these being factors in the current job market, there is plenty of room for new blood to enter the fray.

Veterans and Rookies
If you're a veteran in this business trying to go independent, you're probably tired of the constant sales pressure, office politics and other corporate restrictions placed upon you now. At this point in your career, you have probably developed your own personal investment philosophy that may differ from the methods espoused by your current employer. You may also be concerned about managing your book of business and feel that your clients would be better served in a more independent setting. While having an established client base is a huge advantage for anyone starting their own financial planning practice, it also creates its own set of issues, such as retention and service of key customers when moving those accounts from one company to another.

Newcomers to the business will face much bigger obstacles on the path to success. In addition to the normal start-up issues that must be dealt with, rookies must also build up a client list from scratch, as well as learn the mechanics of the business (which can be considerable.) But, like many entrants into this field, you may see financial planning as a way to make a real difference in other people's lives. Or, if you are an entrepreneurial spirit, you may be enticed by the possible prestige, freedom and high compensation enjoyed by many financial planners. But regardless of your background or motives, establishing your own financial planning firm will likely be one of the most difficult - and satisfying - things you've ever done.

Issues To Consider
1. Costs
Starting a financial planning firm entails many of the same start-up costs as any other business. These include furniture, rent, advertising, technology, utilities and perhaps an earnest deposit with the new broker-dealer (if one is to be used). Licensing and training costs must be counted for those who need them as well. Veterans with a book of business will also need to factor in any possible loss of revenue resulting from the changeover to a new company.

2. Licensing/Training
In addition to obtaining the necessary licenses, rookies should consider earning a professional designation or two, such as the Certified Financial Planner® or Chartered Life Underwriter. Credentials like these can help provide much-needed credibility and academic training for those who are new to the business or looking to expand their repertoire.

If you're a veteran in the business, however, licensing and training may not be a critical issue, unless you are getting into a new line of work. For example, if you have an insurance business and plan to add investments or comprehensive financial planning to your practice, then you will need to be licensed (and perhaps certified) accordingly.

3. Business Plan
As with any other business, it is vital that independent financial planners begin with a sound written business plan. This plan should include:

  • The goals of the business.
  • Specific strategies on how to achieve these goals.
  • The current state of the financial markets.
  • The demographics of clients and prospects.
  • How to differentiate your firm from the competition.
  • A flexible marketing plan.
  • All probable costs - these should be clearly defined.
  • A realistic estimate of the amount of time it will take to accomplish the plan's objectives.

4. Business Model and Services Offered
Determining what kind of financial planning practitioner you will be is an important decision. This choice involves both the type of services you will provide your clients as well as your method of compensation. Financial planners who work on commission tend to earn much more (on average) than fee-based planners. Customers who specifically desire unbiased advice, however, usually seek out fee-based planners. Your personality type may play a role in making this choice; if you have an analytical mind and don't enjoy high-pressure sales, you may feel more at home with just running numbers and making recommendations. On the other hand, if you are a Type-A personality who likes working with people, then you may have more success using a sales-based approach. The type of business model you decide to employ may also determine which licenses you will need to obtain.

5. Partners/Mentors/Employees
Establishing professional relationships is crucial for any budding financial planner, especially one without an established book of business. Finding an attorney or CPA who is willing to partner with you may be the best thing you could do for your business. A mentor can be equally important, particularly for newcomers to the business. Having someone to ask advice of who can guide you through the difficult early stages is an invaluable aid for those who are still learning the business.

If you both need and can afford it, then you will have to find and build an effective support team around you, whether it is a single assistant or an actual team of people. Making certain that all of these pieces fit correctly will take some time and adjustment, but the end result should be a streamlined, efficient staff that allows the business to run smoothly and profitably.

6. Risks/Liabilities
Starting any business involves a certain amount of risk. There is the risk that the business will generate insufficient revenue to survive, as well as risk from liability and other fiduciary responsibilities. All financial planners need indemnity insurance. Errors and omissions (E&O) insurance will guard against malpractice suits, but remember that ensuring regulatory compliance in your business will ultimately be your responsibility. All client complaints and problems must be dealt with in a professional manner to ensure the stability of the business.

SEE: Deal Effectively With Difficult Clients

7. Rewards
Successful planners enjoy high (sometimes very high) compensation, virtual autonomy and convenient office hours, as well as recognition within the community. But the best reward of all can be the sense of accomplishment that comes from helping a client achieve peace of mind by resolving a complex financial issue. Regardless of which type of reward you desire, the financial planning profession may well offer what you seek.

The Bottom Line
While starting a private financial planning practice undoubtedly involves a significant amount of work and risk, those who desire to do so should not let fear prevent them from realizing their dream. Many private and even corporate practitioners will readily tell you that financial planning is the best business in the world.

Related Articles
  1. Financial Advisors

    Tips on Passing the CFA Level I on Your First Attempt

    Obtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
  2. Financial Advisors

    Putting Your CFA Level I on Your Resume

    Learn techniques for emphasizing your CFA Level I status in the Skills and Certifications or Professional Development section of your resume.
  3. Entrepreneurship

    4 Things to Know About Your Company To Make a Successful Pitch to Investors

    Learn how to make a successful pitch to investors. Regardless of your industry, size or market, there are some questions all investors need to have answered.
  4. Entrepreneurship

    Top 4 Billionaires Living in Los Angeles

    Learn how these multibillionaires built their fortunes to stand out from the crowd of the countless ultra-rich who call Los Angeles home.
  5. Entrepreneurship

    Creating a Risk Management Plan for Your Small Business

    Learn how a complete risk management plan can minimize or eliminate your financial exposure through insurance and prevention solutions.
  6. Professionals

    Top Tips for Improving Client Communications

    Effective communication with your clients is the lifeblood of your financial advisory business. If you've struggled in this area, pay heed to these tips.
  7. Investing Basics

    3 Business Tips from Restaurant Reality Shows

    The reality TV shows "Restaurant Impossible" and "Kitchen Disasters" offer lessons not just for restaurateurs, but for all business owners.
  8. Entrepreneurship

    7 HR Basics for Small Businesses

    Whether or not you are a fan of human resources, every employer needs to know the answers to these questions.
  9. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  10. Entrepreneurship

    4 Most Successful Indiegogo Campaigns

    Learn about some of the most successful crowdfunding campaigns on Indiegogo, which raised millions of dollars for everything from electric bikes to beehives.
  1. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. Can hedge funds outperform the market?

    Generating returns that exceed those provided by the broader market is the goal of nearly every investor. However, the methods ... Read Full Answer >>
  6. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center