Investment managers, tax preparers and other financial professionals who wish to broaden their base of business can often do so most effectively by adding additional products or services. However, care must be taken to do this properly in order to ensure success and effectively promote their brand name. There are several financial and logistical factors to consider, for those who choose to expand their practices in this manner; each must be considered in detail before any action is taken, in order to avoid costly errors and professional frustration.

Points of Consideration
The key to successfully adding a new line of business starts with creating a list of the main factors that must be addressed. These factors include:

  • The nature and scope of the new service or business to be offered
  • Staffing, organizing and managing the new business
  • Integrating the new business or service's operations into the current practice
  • Evaluating the risks and costs that will come with the new service or business
  • Setting prices and fees for the new service
  • How to market and promote the new service
  • Regulatory and licensure issues

A clear plan must be created that outlines a list of steps for each of these points. Of course, the complexity and difficulty of each point will vary depending upon circumstances, such as the nature and scope of the advisor's current practice and as well as the type of business or service that is to be added. Advisors who have large, established practices that generate substantial revenue are obviously in a much better position to add new services to their practices than those with smaller client bases. And a CPA who wishes to add financial planning as a separate service can merely challenge to sit for the CFP Board exam, while a CFP who wishes to become a CPA and provide general accounting services may need to complete substantial additional undergraduate coursework in accounting before sitting for the CPA exam. The points listed above will now be examined in greater detail:

Nature and Scope of New Business
This is one of the most important factors to address in the planning process. Advisors need to clarify exactly what products and services they will offer and how the service will be structured. For example, a CPA who offers financial planning must decide whether he or she will also provide asset management services and insurance products. If a CFP or stockbroker branches out into tax preparation, will they prepare corporate, estate and gift tax returns as well?

Structure of the New Business
There are several different ways that financial professionals can integrate a new line of business into their current model. The right choice will depend upon the size and scope of their current business as well as the nature of the additional service being offered. A small practitioner can simply offer the service as an additional line of business in the most informal sense, while large firms will most likely need to create a new department in order to provide adequate support. Some firms may also choose to offer the service as a separate business entity or corporate subsidiary with its own cash flow and balance sheet statement.

Staffing, Organization and Management
In many cases, the owner of a financial services business will see the need to add a new line of business of which they may have little or no knowledge or experience. Additional personnel will, therefore, be required to provide this service, unless an adequate number of current employees are willing and able to be trained in this area. Owners must factor in the amount of time required to accomplish this, as well as the additional time and effort that will be required to run this segment of their practice going forward and whether they need to delegate its oversight to a separate manager or partner.

Integration of the New Line of Business into the Current Practice
This phase of the process deals with how the service will be offered and provided both logistically and technologically. Any new line of business is most likely going to require another computer program, and offering this additional service will probably be a great deal easier if the new program can interface with existing software that allows the importation of client data and other information. Owners must also decide whether the new service will be offered at the time their traditional lines of business are being provided (such as an offer to do financial planning while preparing a client's taxes) or will be provided at a separate time or place.

Evaluating Risk and Cost
Planners will need to do a careful study of both the amount of revenue that they can realistically expect to generate from the new line of service and the costs that will be involved. A good first step may be for them to take a survey of their existing clientele to see how many of them would be interested in using the new service. If the additional service is going to be offered to the public as a standalone business, then planners need to try and project the number of new customers that would be interested in becoming clients of their current practice. A partial list of the probable costs that will be incurred includes:

  • Legal, licensing and liability insurance fees
  • Training and recruiting expenses
  • Additional marketing and promotional costs
  • Additional overhead for new office space (or the cost of purchasing and/or remodeling a building)
  • The cost of any new equipment, furniture and software or other technology that must be used
  • Startup fees for registering with a broker-dealer or investment advisory custodian for those who intend to hold or manage client assets
  • Continuing education fees for everyone involved in the new line of business
  • The cost of all educational and reference materials
  • The time spent developing all necessary documentation for the new line of business, such as client questionnaires
  • Dues for any memberships that need or ought to be purchased, such as for NAIFA, AICPA, the FPA, etc.

Setting Prices and Fees
There is more to consider than simply how much to charge; compensation can take several forms, depending upon the level and type of services that are provided. If the advisor is going to offer income tax preparation, then a flat fee might be charged for each type of return that is prepared (income, estate, gift or corporate). If the advisor is going to offer investment management, then he or she could work on commission through a broker-dealer or charge a percentage of assets under management.

A flat fee might also be appropriate for a comprehensive financial plan, and an hourly fee may be the best route for providing simple advice or recommendations. Advisors who charge flat or hourly rates should probably keep these numbers in the same neighborhood as what they charge for their current services. Advisors may also want to consider offering some services for free to clients who generate substantial revenue; for example, someone who invests $500,000 in an annuity may qualify for a free financial plan or tax preparation. And as with any other business, fees should be at least partially based upon the amount of time and effort required to perform the service.

Marketing and Promotion
The best way to do this will mainly depend upon the nature of the advisor's current practice. The first step is obviously to announce the new line of business to the firm's current customer base. But the new line of business is likely going to be marketable to a specific demographic segment of the public as well, and a study should be done to get a grasp of the needs and motives of the market to which the advisor will advertise. Websites, brochures, speaking engagements, mass mailings, newsletters and other traditional forms of marketing are appropriate tools for this task.

Regulations and Licensure
Those who step into the financial planning or investment arenas must thoroughly acquaint themselves with the rules and regulations that they will be required to follow. The SEC and FINRA have extensive guidelines on how services may be offered, performed and paid for, and those who register with a broker-dealer will face oversight by its compliance department. Those who offer tax preparation must meet the new requirements set forth by the IRS and register as tax preparers beforehand. Adequate education and preparation in this area is one of the first steps in offering any new line of business in the financial industry.

The Bottom Line
Advisors who seek to add additional lines of business to their practices need to carefully evaluate the risks, costs and rewards that are involved. Organizations such as the Financial Planning Association can provide a wealth of resources and information for those who are contemplating this possibility. Those who are currently registered with a broker-dealer should also consult them for feedback and advice. But those who take the time to create a sound business plan and follow it through in an organized fashion can reap substantial rewards for their efforts in the long run.

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