Business advice for financial planning start-ups

The financial advice market has always been a ‘cottage industry’ allowing small firms to establish and thrive. Many advisers have what is termed lifestyle businesses, one- to three-man bands with a sufficient number of clients to sustain a healthy income for themselves and their families. Others have grown into larger local and regional companies. And with the entrance of consolidator companies into the market we are seeing a new trend towards a growing number of national companies, which further down the line, could see the first household financial planning brand names.

With the recent pensions freedoms 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 advisers. This and the attraction 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 advisory firm can

Thinking of starting your own financial planning business?

look appealing. One thing is for certain, there is always room for a quality business in the market.

However, building a business from scratch is no mean feat and the ever-increasing costs and changing regulatory landscape can make it an uphill struggle. 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.

So from clients to costs, what are the key things you need to consider if you’re looking to establish your own firm? We asked successful financial planning business owners for the advice they would give to a start-up firm.

Rob Kingsbury, editor, Adviser Business Review

Contents1. The Business Plan2. Define your client 3. Financing your business 4. Clear values and marketing

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1. The Business Plan

As with all new businesses, a business plan should be your very first step. Important decisions about whether to apply for direct authorisation through to the goals of the business and how you plan to achieve those need to be carefully mapped out.

A plan should not only include your strategy, but the type of client you will service, how you will build your client base, all probable costs and a realistic timeline.

Alan Smith, chief executive, Capital Asset Management, says: “It is absolutely essential to map out a business plan. You need to envisage what kind of company you want to be running not just in a year’s time but ten years down the line – are you looking to create a lifestyle company with very few staff or would you like to create a bigger entity? Your plan should take a long-term view as well as a three-year and 12-month view.”

According to Diane Weitz, director, Ashlea

Financial Planning, those considering starting up their own business would be better suited to direct authorisation.

“Becoming directly authorised is the first big hurdle as you need to have enough in place to receive authorisation,” she says. “But ultimately,

Alan Smith, Capital Asset Management

it is the best option if you’re wishing to run your own business as other routes can lead to more difficulties further down the line.

“The reason I would suggest going directly authorised is to maintain control over your business. All payments come to you. There are companies

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such as SimplyBiz and threesixtyservices that can offer support and a basic business structure for those looking to start their own advisory firm. They will charge a fee for their services but you are in control of the finances. Networks tend to take all the money and therefore can hold some back if you wish to leave. Their structure means that you could be paying for services you may not need and also salaries of the Network employees. The compliance in these structures is always geared towards the lowest common denominator, which may not be appropriate for your business. To my mind, they want too much control of how you operate. Whereas, if you decide to leave the support agency structure or switch providers this is easy to do. You are already authorised so transition is seamless.”

Weitz adds that talking to other advisers who have been through the same process can be an invaluable source of help. “You do need other people to bounce ideas off and it helps to learn from others’ experience. The Institute of Financial Planning is a great place to start,” she says.

Diane Weitz, Ashlea Financial

Planning

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2. Define Your Client

Much like every other industry, researching and defining your target market is a key part of building a successful financial advisory business.

Justin King, managing director, MFP Wealth Management, says: “There are more people out there than we could physically advise, so the opportunities are huge, but the biggest problem is that many advisers haven’t worked out who they want to service.”

Are you looking at the pre- or at-retirement market or would you prefer to provide later life advice? Do you want to work with business owners or professionals such as accountants and solicitors? Would you prefer to focus your work in one particular geographical area or are you happy to have clients spread around?

King says many advisers he speaks to need to be much more defined about the segment of the market they wish to work with, rather than simply targeting “those with money”.

“Advisers are scared of turning away people and being seen as dealing with one particular area of the market, but actually life becomes much easier when you are more defined and specific. You can position yourself as the go-to for that market, and the knowledge and experience you build up will be much more tailored to your target client and therefore more beneficial,” he says.

“People often ask financial advisers what they do and they say they offer clients advice. What they don’t elaborate on is how they help them. This is what makes someone stand out and will help define the type of client they attract,” he says.

See ABR interview Niche targeting has paid off for Whitewell Financial Planning for an article on a company set up to target a niche financial planning market.

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Smith agrees with this sentiment: “Being a generalist is a thing of the past; today you need to identify with a niche segment of the market. I wouldn’t recommend looking at it from a wealth level – very different people with very different needs could have a similar level of wealth but you wouldn’t use the same solutions.”

Smith recommends carrying out thorough research, and says asking yourself what kind of financial problems you hope to solve will help you to identify your ideal client.

Building a client base, however, requires careful planning and a lot of hard work. Advisers with a few clients should look to build their client base through recommendations, and all new businesses could benefit from making professional connections working in a similar field.

Weitz says: “In my view, the small IFA is the most successful area of the financial advice industry as they build up a very loyal client base. Clients respond well to that personal touch and it’s of paramount importance that trust is established.”

3. Financing your business

Once you’ve carved out your target market, the next step is working out how to finance it, and for most new businesses, their cost base remains one of the biggest challenges.

Lee Robertson, CEO, Investment Quorum, says: “The greatest hurdle is undoubtedly the ever-increasing costs advisers face. As a business

Lee Robertson, Investment

Quorum

owner, you need to consider the cost of your premises, the regulatory costs, the rising FSCS levy as well as the expense of additional staff.”

While pinning down an exact figure is difficult, Robertson says advisers starting their own business need to allow for capital adequacy costs and ensure they have a buffer for annually increasing FSCS costs.

Start-ups are advised to map out all their foreseeable costs as well as factor in any estimated revenue so they can budget on a monthly basis, and where possible accumulate a sum of money in advance.

Smith says: “Ideally, you want to avoid starting out in debt. You should really think about your plan in advance and spend a good six to 12 months saving up. Cash in the bank will help see you through the first few months and will enable you to hire administrative help if you need it.”

When considering the financial outlays it’s important to know whether you plan to take on staff from the outset.

According to Robertson, who started his own business with one other adviser and no administrator, starting alone can pose difficulties. “You will want to spend your days seeing clients and dealing with client enquiries, as well as building up your business, so the last thing you will want to be doing at night is administration. We very quickly took on an administrator, after realising we were unable to cope with the workload and needed that support,” he says.

However, this help doesn’t have to come in the form of an employee. Outsourcing has become a very popular method among smaller advisory firms.

Smith says: “You can basically outsource everything from someone answering the phones to administration and compliance and I would advise outsourcing as much as you possibly can.

“The beauty of outsourcing is you can use it as and when you need it, rather than have the commitment of a staff salary and national insurance

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contributions. I would also advise embracing technology as much as you can, which will allow you to automate your service behind the scenes.”

If you do decide to take on a member of staff, Smith says it’s important not to scrimp.

“Hire people you don’t think you can afford as the value they will bring to your business in the long-term will be worth it,” he says.

4. Clear values and marketing

Entering a crowded market means you have to offer something different to keep afloat. Having a clear set of values and an idea of the company culture you want to create is important.

Smith says: “Do you want to emulate the more old-fashioned style of advice or do you want to be more modern? I think the key is to ask yourself how you would like to be described by others – just four or five key words that would sum up what you stand for.”

For Smith, bringing in a flat fixed-fee model helped to set his company apart and he says start-ups should focus on what makes them appealing to clients.

“The financial services industry is great for sharing information and gleaning ideas. Anyone considering starting their own business should pick other people’s brains, really read up on what

See ABR special report on Virtual PA and administration support services

and

Should you be o u t s o u r c i n g your back-office administration?

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makes a successful business and look to emulate certain aspects of companies they admire.”

Marketing your business and your unique offering is crucial to surviving. Social media, writing a blog, featuring in publications read by your target audience and attending networking events and seminars aimed at your segment of the market are all important ways of getting your name out.

“Really get under the skin of your client,” Smith says. “Read up on the issues they’re facing, attend events where you can speak to them and reach out on social media. Once you’ve started making revenue, don’t be afraid to re-invest between 5-10% in marketing yourself and your business.”

He adds: “I really think we are entering the golden age of financial advice – the complexity surrounding financial issues means trusted advisers are needed more than ever. It really is a fantastic time to start a modern financial planning business.”

VISIT THE WEBSITESFCA Four steps to AuthorisationCapital Asset Management Investment Quorum Ashlea Financial Planning MFP Wealth Management

See The value of marketing for advisory businesses

ADVISER BUSINESS REVIEW Editorial: Rob Kingsbury Email: robkingsbury@kgrms.co.ukTel: 01256 411677 Advertising: 0203 478 4651 Published by KGR Media Services Ltd © KGR Media Services Ltd 2015