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How to Start a New Financial Advisor Practice

Launching and working in your own financial advisor practice or firm may sound like an ideal career path, but it’s not as easy as it sounds and it definitely cannot be done overnight. It requires a lot more planning and hard work than most businesses, and requires a lot of dedication to make your practice succeed. 

It’s even harder if you have no experience in the financial services and financial planning industry. It’s an uphill battle even for experienced financial advisors starting out on their own, because the process of building up a sustainable client base while trying to keep up with your personal and business expenses can be quite taxing. 

Let’s take a closer look at some of the basic things you’ll need to start up your own financial advisor firm.

Startup Capital and Ongoing Expenses

The good thing about launching your own financial advisor practice is that it’s not as capital intensive as other businesses. You don’t really need to purchase equipment or inventory to get started. You probably already have a decent computer and a phone, so that takes care of many of your communication and marketing needs. 

Realistically, you probably need around $5,000 to $10,000 to get your financial advisor practice off the ground. This should take care of your compliance and business filings, and also allow you to set up your website and subscriptions for software and tools.

Here’s a short list of the things you’ll need:

      • Registration Costs
      • Website 
      • Financial planning software
      • Monthly subscriptions
      • Insurance
      • Office space
      • Staff

Renting an office space and hiring staff will significantly add to your overhead expenses, which means you’ll probably need more than $10,000 to cover your rent and payroll for the year. But these expenses aren’t absolutely necessary unless you want to start out with a small team of administrative assistants and junior advisors. 

Technology has made managing a financial planning business much easier and you don’t really need to rely on administrative staff anymore especially if you’re just planning on a small or medium-sized operation.

Many solo financial advisors have been very successful doing business purely online from home or from co-working spaces and only occasionally meet prospects and clients at their homes, businesses or in restaurants over lunch for presentations and discussions.

All the other costs we’ve listed are absolutely necessary if you want to be successful. Luckily, in most cases, both the initial and recurring costs are not really that high considering the returns you can realize as your business grows. 

What you do need to consider is how you’re going to cover your personal monthly expenses as you’re building up a client base that can sustain both you and your business. The first few months or even years are going to be tough if you don’t have a steady stream of clients signing up, so you need to be prepared financially for those tough times. 

Licensing and Compliance 

When most people think of a financial advisor, they’re most likely thinking about an RIA (Registered Investment Advisor). RIAs have a fiduciary duty to do what’s best for their clients. 

Someone who is purely a registered representative for a broker-dealer is not bound by the same fiduciary oath as an RIA, but is licensed to sell securities and a wide array of investment products. However, many RIAs are also independent broker-dealers so they can meet the demands of their clients.

To become a RIA and be able to legitimately provide financial advice and get compensated for it, you need to be registered with your state. If you plan on doing business in other states, you need to be registered there too. 

You can also register with the SEC, but that will require your firm to have at least $25 to $100 million in AUM (Assets Under Management) or you have to be doing business in more than 15 states. 

To be able to register your business as an RIA, you, as the principal and IAR (Investment Adviser Representative), should have passed the Series 65 exam. If you’re already a registered representative for a broker-dealer, you should already have taken the Series 66 and Series 7 exam which also qualifies you for the Series 65 exam. 

In addition, most states will also waive the Series 65 requirement and allow you to start an RIA if you have any of the following professional qualifications:

      • CFP (Certified Financial Planner)
      • CFA (Chartered Financial Analyst)
      • ChFC (Chartered Financial Consultant)

While the Series 65 is the minimum requirement to start your own RIA, most clients will want to see that you have a CFP title as well since you’ll be competing with financial advisors who have CFPs which is often seen as the gold standard for professional qualifications in the financial planning industry.

There are many companies like RIA in a Box and XY Planning Network that can help you with your compliance requirements if you’re having any trouble navigating the registration process yourself.

Brand Development and Marketing

Before registering anything, you first need to think about your company name and how you’re going to develop your brand. It may seem like a small detail, but it’s going to be the foundation of your business and your marketing once you start officially registering things. 

You also need to come up with a good logo so that people can easily identify your brand. It’s best to find an experienced professional who can help you with the design aspect so that you can present your company in the best light possible.

Look for a web design agency that has lots of experience with financial advisor websites. They can make sure that your website looks professional and appealing to anyone looking for financial services. They’ll also be able to take care of your copywriting and SEO needs so that people can easily find your site. Most people will want to research more about your firm before they sign up with you, so you need to make sure your website is able to create a great first impression.

In most cases, it’s better if you focus on a specific niche so that you can properly align your branding and marketing with your target audience. Being a specialist doesn’t deter you from taking on clients outside of your niche, but it does help you appeal to a specific audience. 

It’s also easier to streamline your financial planning strategies around the needs of your niche audience. Eventually, you’ll become a recognized expert in the space and you’ll have pretty much dealt with every scenario that comes your way.

Final Thoughts

Once you’ve established your financial advisor practice, you need to focus on building your client base if you want your business to survive and thrive. This will require a lot of active marketing, cold calling, follow-ups, and networking. At the same time, you need to provide great service and deliver on your promises to your existing clients so that you can build up your brand’s reputation. You need to make your company stand out from your competitors and constantly work on increasing awareness for your brand. All of it is extremely hard work, but the end result is very rewarding.

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