How to start a wealth management company

In the past few years, the independent wealth management industry has been a continuously growing part of financial services. According to data from the Boston Consulting Group, the United States and Canada have approximately US$55.7 trillion in private wealth to compete for.This number makes many financial professionals consider opening their own wealth management companies. In this article, we will introduce some key tips that independent financial advisors should keep in mind when starting their own wealth management company.

Follow the rules

Aspiring wealth management entrepreneurs must ensure that they follow the rules and etiquette when leaving their current employer. In many cases, financial services employees have contractual obligations to their employers, prohibiting them from working in or for competing companies and promoting external services to customers. Some employees may also have non-compete clauses in their contracts that prohibit them from working in the financial services industry for a period of time after leaving their jobs, although these contracts are often broken in some cases. (For more information, see: Do not sign a non-competition agreement without reading this article.)

Entrepreneurs should carefully consider these contractual obligations to avoid prosecution and observe common sense etiquette. For example, entrepreneurs should not engage in new business during working hours, should not contact customers before leaving their employers, and should cleverly contact former customers afterwards to avoid any problems with their former employers.

Consider the cost

Independent financial advisors seeking to establish their own practices inevitably take a lot of risk in the form of previous costs. Unlike most small businesses, consulting firms must meet many complex regulatory requirements, which can be very expensive. The first major expense incurred by the new business is compliance, including setting up ADV (customer manual) and state licensing.Generally speaking, the cost of these services can range from US$2,000 to US$5,000, with annual recurring costs of US$2,000 or more. Insurance expenses, office expenses, letterhead, website, bank fees, association fees, subscription fees, and many other expenses can easily add up to more than tens of thousands of dollars. (For more information, see: Start your own financial planning company.)

Financial advisers must also consider the opportunity cost of establishing their own independent business, because part of their existing clients is unlikely to follow them. In addition, many referees may refuse to switch to new practices and prefer to stay in a larger company. These costs can also be as high as tens of thousands of dollars, but they will be offset by the higher profitability of each customer.

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Develop a pitch

Most entrepreneurs must start working immediately after leaving their former employer to pay wages and maintain their new business. Usually, the first step is to contact previous customers while keeping the rules in mind. Before reaching this point, entrepreneurs should conduct adequate publicity for these former customers and effectively communicate why they should transfer accounts. Newly established companies have no reputation (except for the owner) in the early stages and have high solvency risks. This is a challenge that entrepreneurs must overcome when dealing with these previous customers and trying to attract new customers. (For more information, see: 4 questions all financial advisors need to ask.)

Compared with large institutions, the best promotion highlights the entrepreneur’s skills and competitive advantage. For example, a new company may specifically use computer algorithms to identify the best opportunities. The new owner may also point out that given the smaller customer base, smaller wealth management companies can provide more personalized customer support, ensuring more attention to their accounts and maximizing their returns.

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Recruiting professionals

Setting up a new wealth management company can be a complex and time-consuming process involving a lot of legal, regulatory, and compliance work. Although financial advisors may be familiar with many of these things, establishing them usually requires professional help. The good news is that more and more companies have been established to help financial advisers build their own businesses. In exchange, these companies may charge consulting fees, asset percentages, and even equity in the new company. For example, Tru Independence can handle everything from registered investor advisor (RIA)/broker-dealer registration, credit and loan facilities to the selection and design of office space for aspiring entrepreneurs.

In addition to a solid legal foundation, independent financial advisors should also consider investing in professional help when designing professional-looking websites, business cards, and other marketing materials. It turns out that professional consultants can also avoid hiring full-time employees to handle simple tasks such as bookkeeping, accounting and even secretarial duties, which helps to reduce costs as soon as possible without sacrificing quality. (For more information, see: Become an independent financial advisor.)

Use technology

Venture capitalist Mark Anderson once said that “software is eating the world”, which means that technology is rapidly changing the way the entire industry operates.Although financial services are making slow progress in adopting new technologies, it is becoming an increasingly important part of the ecosystem. Independent consultants can use many different tools to improve their customer service and optimize their profitability. (For more information, see: How technology is changing financial advice,)

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Technology can also be used to reduce costs in other business areas, such as payroll, accounting or marketing. For example, compared to hiring an in-house accountant, DIY services like Gusto can help reduce wage costs, while the automated phone system of companies such as Grasshopper can avoid the need for full-time secretaries. These types of services may not be specific to consultants, but they certainly help increase profitability.

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Bottom line

Starting a wealth management company is a complicated process, but if you have the right help and tools, entrepreneurs will gain a lot. By keeping these basic rules in mind, financial advisors can increase their chances of success and avoid costly litigation and other difficulties associated with leaving the corporate world and entering their own practice.


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