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Starting a Financial Planning Business from Scratch – A Complete Guide

Do you want to start a financial planning company from scratch? If YES, here is a complete guide to starting a financial planning business with NO money and no experience.

Okay, so we have provided you an in-depth sample financial planning business plan template. We also took it further by analyzing and drafting a sample financial planning marketing plan backed up by actionable guerrilla marketing ideas for financial planning agencies. In this article, we will be considering all the requirements for starting a financial planning business. So put on your entrepreneurial hat and let’s proceed.

Why Start a Financial Planning Business?

Be you a veteran financial planner looking to get out from under an over demanding boss, or a young individual just out of college, the dream of starting your own financial services venture is probably an aspiration that gets you out of bed on even the rainiest of days.

Things like money, autonomy, convenient office hours and recognition within the community all come as part of the package, at least in our thoughts. But in the real world, starting a financial planning venture is a lot of hard work.

A lot of people who fail are often those who fail to plan. Financial planners work with individuals, families and businesses to invest their money wisely. These professionals also called financial advisors are knowledgeable financial experts with the ability to differentiate profitable investment opportunities from poor performers. They match clients with a customized mix of products that protect their assets while earning a profitable return.

A lot of things have moved us to believe that the 2008 financial crisis made the job market an increasingly competitive place, one of the few careers estimating growth and relevance is that of a financial planner. We believe that the age of your average financial planner/advisor is increasing along with the ages of his or her client base.

This is the reason why more planners are leaving their practices and more potential clients are entering their retirement years. Also we believe that this changing of demographics in the American population is rapidly opening up new areas of specialization, such as long-term care and alternative investments.

Starting a Financial Planning Business from Scratch – A Complete Guide

  • Industry Overview

This industry is made up of businesses that provide financial planning, financial advice and wealth management to people and business clients. Businesses in this industry also offer advice in conjunction with other activities such as portfolio management, protection planning and brokerage services.

The rise in the financial planning business has compounded swiftly over the past five years. Prior to the current five-year period, increased unemployment and falling disposable income negatively impacted new and recurring advice fees. Analysis has shown that since consumers had less available income, they prefer to save money or pay off debts instead of capitalizing on investments.

But the return to economic growth and employment reversed this trend. Research believes that over the five years to 2022, revenue is expected to continue to increase as financial markets improve. Experts forecast that the growing number of affluent households and rising equity markets will aid grow total Assets Under Management (AUM) for the industry and raise revenue generated from fees charged on the value of AUM.

Also within the 10 years to 2021, industry value added which measures an industry’s contribution to the economy, is expected to grow at an annualized rate of 6.0%, which is above the expected 2.0% annualized growth of US GDP during the specific period. This has led us to believe that the financial planning industry is in a mature phase of its life cycle.

The industry’s rapid expansion after over the 10 year period accelerated contribution to overall economic growth, but the declining state of establishment and wage growth has muted the industry’s role in other facets of the economy. We believe that the big US banks and broker-dealers are increasing their share of the financial planning industry as the industry has experienced an increased rate of consolidation and it is expected to keep rising.

Starting a Financial Planning Business from Scratch – Market Feasibility and Research

  • Demographics and Psychographics

We strongly believe that this business is perfect for seasoned business owners or upper level managers who are looking for a career change. A financial planner must be experienced in financial and business management, marketing, team building and management.

To survive in the industry, you must also understand how to generate revenue from a wide range of businesses and expand existing streams of income. Day-to-day activities of a financial planner include meeting with clients in person, via video conferencing applications or services, and making recommendations to their clients. A lot of financial planners spend majority of their days building financial plans for clients and giving advice on finances.

Scheduling and project management is a major part of the job also. Businesses that provide financial planning need to be able to coordinate multiple schedules since even small businesses can have several officers who need to be present for all meetings. We believe that a financial planning venture makes money by charging a fee for advice or for financial plan construction. This fee can be either a flat fee, hourly fee or a revenue-share fee.

List of Niche ideas in the Financial Planning Business

When starting this business, you should know that financial planning should cover all areas of the client’s financial needs and should result in the achievement of each of the client’s goals. The scope of planning would usually include the following mentioned below and they can also serve as a niche to choose from or you can decide to provide financial planning services to a particular segment of the population.

  • Risk Management and Insurance Planning
  • Managing cash flow risks through sound risk management and insurance techniques
  • Investment and Planning Issues
  • Planning, creating and managing capital accumulation to generate future capital and cash flows for reinvestment and spending, including managing of risk-adjusted returns and to deal with inflation
  • Retirement Planning
  • Planning to ensure financial independence at retirement including 401Ks, IRAs etc.
  • Tax Planning
  • Planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes
  • Estate Planning
  • Planning for the creation, accumulation, conservation and distribution of assets
  • Cash Flow and Liability Management
  • Maintaining and enhancing personal cash flows through debt and lifestyle management

Level of Competition in the Financial Planning Industry

The value of Assets under Management (AuM) worldwide, an indicator of demand for financial planning and investment advice services is about $70 trillion. The global AuM is forecast to exceed $100 trillion by 2020, with nearly half residing in North America.

In North America AuM is expected to grow at a compound annual rate of 5.1% through 2020 to more than $49 trillion (from a 2012 total of $33.2 trillion), exceeding expected AuM for Europe, Asia/Pacific, and the Middle East and Africa combined.

From our research, we have been able to note that the US industry includes about 16,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $37 billion. We also believe that demand in the industry is driven by consumer income, wealth and demographics. The profitability of individual ventures rest solely on effective marketing.

Bigger companies in the industry have some advantages in providing expertise in a wider range of investment options, and they may be able to charge lower fees. While smaller companies can compete successfully by providing better service and advice. The US industry is concentrated: the 50 largest companies account for about 55% of industry.

List of Well-known Financial Planning Business

  • Stancorp Investment Advisers Inc.
  • Cambridge Investment Research Advisors Inc.
  • Moneta Group Investment Advisors LLC
  • Oxford Financial Group Ltd.
  • Sontag Advisory LLC
  • Plante Moran Financial Advisors
  • Ronald Blue & Co. LLC
  • Edelman Financial Services LLC
  • Clarfeld Financial Advisors Inc.
  • 1st Global Advisors Inc.
  • GW & Wade LLC
  • Harris SBSB
  • M. Davis Inc.
  • Homrich Berg

Economic Analysis

If you are a veteran in this business trying to go independent, you are probably tired of the constant sales pressure, office politics and other corporate restrictions placed upon you now. But then at this particular point in your life, you have probably developed your own personal investment philosophy that may differ from the methods espoused by your current employer.

There is also a possibility that 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. Indeed having an established client base is a huge advantage for anyone starting their own financial planning business, but 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.

In this industry, newcomers 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. Note that just like many entrants into this field; you may see financial planning as a way to make a real difference in other people’s lives.

Some will also be enticed by the possible prestige, freedom and high compensation enjoyed by many financial planners. Have it mind that irrespective of your background or motives, building your own financial planning business will likely be one of the most difficult – and satisfying – things you have ever done in your adult life.

Starting your Financial Planning Business from Scratch or Buying a Franchise

We strongly believe that with the recent pension freedom and other legislative changes creating greater complexity around pensions, tax and general financial planning, the consensus is that the next ten years and more are likely to be a boom time for financial planning businesses.

All these forecast and the excitement of owning your own company, mean that whether you’re a seasoned adviser looking to go it alone or a newcomer to the industry, the prospect of starting up your own financial planning business can look appealing.

But then building a business from scratch is no mean feat and the ever-increasing costs and changing regulatory landscape can make it an uphill struggle especially in the financial planning business. Careful planning, research and determination are all key ingredients to building a successful business, and failing to plan could, quite literally, be planning to fail. Starting from the scratch will sure favour some entrepreneurs. But for the sake of starting this business buying a franchise is sure the best route of entry into this business.

Possible Threats and Challenges of Starting a Financial Planning Business

A lot of entrepreneurs dream of setting their own work hours, maximizing their income and becoming their own boss. There can never be a better time or moment to start a financial planning business, but there are few challenges and barriers to starting your financial planning business and they may include…

  • Deciding what sort of financial planning business you want to start
  • Choosing an entry strategy for your financial service business
  • Constructing a business plan for your financial planning business
  • Incorporating and marketing your practice
  • Learning the policies that govern the financial aspects of your target market

Starting a Financial Planning Business from Scratch – Legal Aspect

  • Best legal entity for a financial planning business

For you to able to make this very important decision intelligently, you must be knowledgeable about the alternatives from which you may choose. Note that a business can be structured in several ways; however, the law classifies businesses so that most fall into one of three legal forms. They are: Sole Proprietorship, General Partnership and Corporation.

There are also variations on some of these basic legal forms — the S corporation, the limited partnership, and the limited liability company (LLC), a relatively new form of business organization which has gained legal status in a majority of states. But for the sake of this article, the LLP is the best legal entity for a financial planning business. The reasons are:

  • It gives you Liability Protection

Indeed all participants in the general partnership legal structure are personally responsible for the actions of the company. This includes debts, liabilities and the wrongful acts of other partners. But limited liability partnership offers you liability protection.

This type of partnership structure protects individual partners from personal liability for negligent acts of other partners or employees not under their direct control. This simply means that partners are not personally responsible for company debts or other obligations.

  • It gives you an immense Tax Advantage

Forming the partnership simply means that all partners are normally liable for filing personal income taxes, self-employment taxes and estimated taxes for themselves, according to the Internal Revenue Service. But the partnership itself is not responsible for paying taxes.

We believe that the credits and deductions of the company are passed through to partners to file on their individual tax returns. But then the credits and deductions are divided by the percentage of individual interest each partner has in the company, which can be very beneficial for partners who have a limited interest in the company or special tax requirements due to their interests in other businesses.

  • It offers you business Flexibility

You might not know that limited liability partnerships offer participants flexibility in business ownership. It simply means that partners have the authority to decide how they will individually contribute to business operations. Managerial duties can be divided equally or separated based on the experience of each partner. Also partners who have a financial interest in the company can elect to not have any authority over business decisions but still maintain ownership rights based on their percentage interest in the company.

Catchy Name ideas for a Financial Planning Business

  • Mascot financial planners
  • Spiral finance
  • Success advisors
  • Main gate financial consults
  • Afterlife advisors
  • Manny planners
  • Access funds
  • Estate advisers
  • Sole finance LLP
  • Arthur financial associates
  • Becky and partners

Insurance Policies

Note that in this business, you are responsible for your client’s financial health. Also have it in mind that your clients look to you for stability and assistance in achieving financial goals, whether it is buying a home, managing their retirement fund, or simply improving household cash flow.

But what if something went wrong? Indeed a downturn in the economy or miscalculation could mean your client’s financial situation is suddenly at risk, and you could be facing a lawsuit that alleges you failed in your professional duties. And CFPs face more than just professional liabilities. There is a possibility that you could be sued for property damage, injuries, or workplace accidents. Your risk management plan will also have to account for basic business risks.

  • Business Owner’s Policy
  • Professional Liability Insurance Coverage (E&O)
  • Computers & Media Insurance Coverage
  • Data Breach Insurance Coverage
  • Valuable Papers & Records Insurance Coverage
  • Business Income for Off-Premises Utility Services Coverage (OPUS)
  • Workers’ Compensation Insurance
  • Commercial Auto Insurance
  • Home-Based Business Solutions

Intellectual Property Protection

You need to understand that your financial planning business competitive edge and its future value may rest on the way you protect assets such as trademarks, patents, copyright and industrial designs. You need to start by understanding the rules about trademarks, patents and copyright so that you can protect your venture’s works and innovation and safeguard them from potential legal difficulties.

Intellectual property (IP) rights play an important role in monetizing innovation—if you make it easy for competitors to copy ideas, you can ultimately destroy the venture’s success. Have you ever considered how many people have access to your IP during the tax preparation, review and audit process? In order to adequately protect your business, you need to,

  • Use a non-disclosure agreement liberally
  • Be proactive in protecting your IP
  • Invest in universal IP protection, where possible
  • Discover your business advantage

Is Professional Certification Needed to Run a Financial Planning Business?

The Certified Financial Planner (CFP) which is the most popular and renowned certification in this industry is a mark of financial planners conferred by the Certified Financial Planner Board of Standards (CFP Board) in the United States, and by 25 other organizations affiliated with Financial Planning Standards Board (FPSB).

For individuals to be able to get the authorization to use the designation, they must have met education, examination, experience and ethics requirements, and pay an ongoing certification fee. Other certifications may include;

  • FPSC Certification
  • Certified Corporate FP&A Professional
  • CISI Certification

Legal Documents Needed for a Financial Planning Business

Almost every state and country have laws about what sorts of businesses need to be regulated by the government. This is why it is strongly advised that you check with your local laws to determine if you will be required to get a license for your financial planning business before you begin. These are some of the documents you might need;

  • Business license
  • Insurance
  • Preparer Tax Identification Number (PTIN)

Financing a Financial Planning Business

Every business that wants to be successful requires outside funding, but many entrepreneurs don’t know where to find it, or how much to ask for it. Be it loans, small business grants, angel investors, venture capital, crowd funding, or investments from friends and family, you can greatly improve your chances of securing business capital. Ways of financing your financial planning business may include;

  • Personal savings
  • Pitching
  • Angel investor
  • Partnership
  • Venture Capital
  • Loans and grants
  • Alternative funding source like Crowdfunding

Choosing a Suitable Location for your Financial Planning Business

When you are preparing to start this business, you sure will have noted financial businesses in your area. They are easy to spot. It is tough to come across a strip mall that does not have one of these guys already in it, but you should ask yourself: why do they choose these locations? You can be rest assured they have done their homework.

We believe that these ventures choose their locations because of population density, average adjusted gross income (AGI) in that surrounding area and proximity to their target market. We strongly advice that you use the same factors when considering locations for your financial planning business.

Note that you are familiar with the specific area you are considering, and you probably have a pretty good idea of how many people have access to that location, what income level they belong to, and you can do a survey of competitors by driving around. We believe there are specific demographical and socioeconomic reports that provide specific details relating to these topics. You should consider all these before settling for a location.

A lot of businesses in this industry use their homes as business locations. Indeed the clear advantage is saving money on overhead expenses. However, some business owners choose to operate from commercial offices because it conveys a professional image to clients. If your funds are limited, you may want to consider starting your business in your home, then eventually moving into a commercial space once you earn a profit.

Starting a Financial Planning Business – Technical and Manpower Requirements

The financial Planning business requires almost the same start-up costs as any other business. The costs would go into 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. Individuals well versed in the industry will also need to factor in any possible loss of revenue resulting from the changeover to a new company.

You also need to decide on what kind of financial planning practitioner you will be, and this is an important decision. We believe that this choice involves both the type of services you will provide your clients as well as your method of compensation. Note that financial planners who work on commission tends to earn much more (on average) than fee-based planners.

Have it mind that clients in this business who specifically desire unbiased advice, usually seek out fee-based planners. Indeed 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.

We also recommend that you create professional relationships, 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.

Note that having a mentor can be equally important, particularly for newcomers to the business. You need to have someone to ask advice of who can guide you through the difficult early stages. You need to make sure that all of these pieces fit correctly, and they will sure take some time and adjustment, but the end result should be a streamlined business.

The Service Process Involved in a Financial Planning Business

Your success in any business is your ability to get all the members of your team on the same page at all times. As the chief executive officer or president of the consulting venture, it is you responsibility to give direction to the business. You need to be able to understand how the industry works and all loopholes to avoid. The service process of financial planning is summarized into six simple steps, they include;

  • Establishing and defining the client and personal financial planner relationship
  • Gathering client data and determining goals and expectations
  • Analysing and evaluating the client’s financial status
  • Developing and presenting the financial plan
  • Implementing the financial planning recommendations
  • Monitoring the financial plan and the financial planning relationship

Starting a Financial Planning Business – The Marketing Plan

  • Marketing strategies for a financial planning business

Marketing your financial planning is best done through direct mail, online direct marketing and referral marketing. We recommend that you buy a mailing list of companies that have already used financial planning or consulting services within the last 30 to 90 days.

These companies are most likely to want to hire another planner. Be sure to ask your list broker for average dollar amount spent on services and filter the list to include only buyers (called a “buyer’s list”). You should also consider printing flyers and business cards and hand them out to local businesses. You may not get much work this way, but it gets your name out there. Ways to market your financial planning business is simply outlined below;

  • Bring in a dedicated marketing resource
  • Implement a referral strategy
  • Visit your existing clients systematically
  • Build events
  • Build alliances with other referrers of work

Winning Competitors in the Financial Planning Business

Just like we must have stated so many times in this article, the financial planning industry is filled with huge competition. Bigger ventures have in-house marketing and PR teams to take care of business development. Small ventures, however, need to be strategic in their marketing efforts.

  • Most financial services venture often make two common mistakes when approaching their marketing strategy: They become bogged down in a flurry of marketing activities without stopping to evaluate the tangible benefits of those tactics, and they fail to adequately employ existing marketing assets.
  • Businesses that want to initiate or revitalize their marketing program should start by scrutinizing existing marketing activities and determining the value that each activity brings to the venture.
  • Get rid of activities that aren’t delivering payoff for the venture. Instead, focus on marketing activities that will bring value to your venture through business development and building client loyalty.
  • Avoid seeing tactical results such as media exposure, website traffic, email click-through rates, and social media “Likes” and “Followers” for tangible business outcomes such as lead generation, conversion rates, and acceptance of new service offerings among existing clients.
  • Make use of intellectual capital to get a foot in the door with prospective clients. For example, when a venture member presents at a conference, use that opportunity to reach out to related target audiences following the event by leveraging on the presentation’s content as a hook to engage prospects in a meaningful conversation.
  • Understand how to sell “intrinsically” to demonstrate your venture’s expertise on a first-hand basis and establish greater trust with prospective clients. Effective marketing facilitates the engagement of prospective clients in a substantive discussion of their specific situation, challenges and goals.

Strategies to Boost your Financial Planning Business Brand Awareness and Creating a Corporate identity

Understand that making your financial planning business more profitable is a simple matter of specialization and differentiation. It is your duty to make your firm stand out. Never charge the lowest fees. In this industry, the higher the fee, the more competent you appear to prospects. At the same time, your advice and work must be worth the price.

  • Attract and engage your target market
  • Enhance and reinforce your brand
  • Position yourself as a trusted advisor and go-to resource
  • Generate and identify leads for more business
  • Develop more profitable relationships with clients, prospects and referral sources
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