Tips on Starting a Financial Planning Firm (2024)

Why Open Your Own Firm?

Whether you're a veteran financial planner looking to get out from under a tyrannical bossor 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 what you need to knowto turn your dream into a thriving business reality. We will go over seven crucial factors to keep in mind when starting your own practice.

Growing Demand for Financial Planners

The age of your average financial planneris increasing, along with the ages of their client base. With that, more planners are leaving their practices while more potential clients are entering their retirement years.

This changing demographicsin 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. These factors have increased the need for qualified financial planners.

Veterans and Client Base Retention

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 client basewould 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. Think about how you will achieve client retention and still be able to service key customers when moving those accounts from one company to another.

Rookies and Client Base Building

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.

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.

#1. Start-Up 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 mustbe taken into accountfor 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 and 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 issueunless 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 Creation

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

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. Build Professional Relationships

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 the advice of who can guide you through the difficult early stages is invaluable 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 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. Know the Risks and Liabilities

Starting any business involves a certain amount of risk. There is the riskthe 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.

#7. Reaping the 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.