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How to Start a Financial Advisory Business

How to Start a Financial Advisory Business

You want to turn your idea of starting a financial advisory business into reality yet are not sure how. Starting a business can seem like an overwhelming task but with some guidance, you can successfully start your financial advisory business. If you follow these five steps, you will be on your way to operating a successful business. You will need to perform market research, decide on your services, revenue model, and finally write a business plan.

Financial advisors help their clients manage their financial portfolios and investments. And with the number of retirees expected to double over the coming decades, now is a good time to start a financial advisory business. Read on to learn more.

1. Market Research

Before starting your financial advisory business, conduct market research on the services you will provide. Determine if there is enough demand for your services to support and grow your business. Online commerce affords you the advantage of reaching a worldwide audience. This helps increase the demand for your services.

While doing your marketing research, look at your competitors. Look at the websites of other financial advisory businesses. Look at the performance of their websites looking specifically at the traffic and keyword ranking. Also take note of your competitors’ sales, revenue per sales, and their customer demographic.

2. Services provided

Financial advisory businesses provide their customers with financial planning and managing their investments. When starting a financial advisory business, you need to decide if you want to specialize in helping your clients with their investments. This will involve developing strategies for both short- and long-term acquisition and disposal of your client’s holdings.

Alternatively, you can help your clients with their financial planning. By doing so, you will focus on helping your client develop and manage their financial profile. Insurance, budgeting, taxes, estate planning, and succession planning are parts of financial portfolio management.

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3. Revenue Model

After completing your market research and deciding on which services you will provide, you need to determine your revenue model. The most common revenue models for financial advisors are fee-based and commission-based revenues. The services you provide will determine the type of revenue model you follow.

Fee-based revenue model

Collecting a predetermined flat rate for your financial advisory services is considered a fee-based source of revenue. These advisory fees can be a flat rate for financial advice or a retainer fee. The most common types of advisory fees are consulting fees, financial planning fees, and investment management fees.

Commission-based revenue model

Income earned on products you sell is considered commission-based revenue. Also considered to be in this category is earning commission for opening new accounts. Insurance policies, including life insurance, long-term insurance, and term insurance are types of commission-based revenues. Annuities, such as real estate investment, are also included in the commission-based revenue model.

4. Write a Business Plan

A business plan is the backbone of the business. It clearly defines the company’s services, organization, strategies, requirements, and projections. Most states require you to submit a business plan with the business license application. Additionally, financial institutions providing funding will require a business plan. There are seven major components of a business plan.

Executive Summary

The executive summary provides the main points of the business plan. It gives an overview of the business’s history and mission statement. Included in the executive summary are the company’s name, location, and business structure.

Business Description

The business description describes the key details of your company. In this section of your business plan, you will want to include a description of the services you have to offer. You will also include in the business description what makes your company different from the rest of the financial advisory firms.

Market Analysis

In this section of your business plan, you want to discuss how external factors affect your specific marketplace. The conditions that may affect the marketplace are supply and demand, government policies, speculation, and demographics.

Organization Management

The information included in the organization management section of your business plan will explain how your company is structured hierarchically. The management structure of your business will depend on business structure (i.e., sole proprietorship, partnership, limited liability company, or corporation). In this section, if applicable, you will want to detail the roles of the president, vice-president, board of directions, CEO, and managers.

Sales Strategies

Your sales strategies are the ways you will present your product to potential clients. This is the section where you tell how you will sell your services. Clearly detail your objectives and methods of gaining sales. Include in this section how your product is different from others in the marketplace.

Funding Requirements

Like it sounds, funding requirements are the total amount of funds you need to successfully operate a financial advisory business. In this section, you will outline the company’s start-up and operating expenses. You also need to discuss how you will obtain the funding you need for start-up and how you will pay for expenses until you earn revenue.

Financial Projections

In this section, you will project what you expect your financial situation to be over time. This is where you include your annual budget and long-term financial goals. You will want to include your project sales and revenue.

5. Licenses

Check with your local state regarding the required licenses for your area. Most states require a business license. While there is no specific license for financial advising there are required licenses for selling investment products. Check with your state for their specific requirements.

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Open for Business

The research, bureaucracy, and paperwork make starting a business seem like a grueling task. But now you have the knowledge of how to start a financial advisory business. And with this knowledge, you can feel confident in your success.

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