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. CostsStarting 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/EmployeesEstablishing 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/LiabilitiesStarting 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. RewardsSuccessful 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.
by
Mark P. Cussen has more than 15 years of experience in the financial industry, which includes working with investments, insurance, mortgages, taxes and financial planning. He has five of experience as a financial author and has written many educational articles for various financial websites as well as revising and updating training material for insurance and securities licenses. He has also worked in retail, discount and bank brokerage systems and is currently working as a financial planner for the U.S. military. Mark has a Bachelor of Science in English from the University of Kansas and completed his CFP coursework at the Bloch School of Business at the University of Missouri-Kansas City in August of 2001.
