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. Fundamental Analysis

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
  2. Entrepreneurship

    What Does Bootstrap Mean?

    The term bootstrap refers to launching and building a business with little capital and no funding from outside sources.
  3. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  4. Professionals

    Small RIAs: How to Level the Playing Field

    In order to compete with larger firms, small RIAs have to get a little creative. Here are a few ways to kickstart growth.
  5. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  6. Professionals

    How to Manage a Client's Return Expectations

    One of the most critical functions of an advisor is to set realistic return expectations for their clients. Here are some ways to achieve this.
  7. Entrepreneurship

    Top 5 Startups That Emerged in Denver

    Learn why Denver is one of the hottest markets in America for startups, and identify five of the top startups that are emerging from the Denver market.
  8. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
  9. Professionals

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  10. Professionals

    Are Hedge Fund ETFs Suitable for Your Portfolio?

    Are hedge fund ETFs right for you? Here's what investors need to consider.
RELATED TERMS
  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  3. Fast Fashion

    Definition of "fast fashion."
  4. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  5. Enterprise Investment Scheme (EIS)

    A UK program that helps smaller, riskier companies to raise capital ...
  6. Ginnie Mae Pass Through

    A type of investment issued by the Government National Mortgage ...
RELATED FAQS
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. How are American Depository Receipts (ADRs) exchanged?

    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>
  6. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!