Starting a Financial Planning Business

by Peter Rawle

As is the case when you are starting any new business due thought must given to your target audience, your value proposition, the structure of your business and what will required from a capital and resources perspective to establish the business.

Many people start  planning the structure of a financial planning business by looking at investment platforms, software, research, dealer group, service providers and finally product.

The Key to establishing a robust business system

I would advocate that by starting with how you are going to implement a portfolio for a client and working backwards from there is a far more logical way of establishing a robust business system. Until you decide what investment process you are going to use and how you are going to implement that process in your business it is nearly impossible to choose a dealer, other service providers, software, platforms and research.

By way of example let's look at some of the different ways that advisers are currently investing clients’ money. One of the first questions an adviser has to ask, is whether the adviser wants to do the investment selection or outsource it. Many of the most successful practices today have chosen to outsource all investment management by choosing groups such as Dimensional , multi-manager funds or the strategic risk allocation process.

It is not the purpose of this article to sway you one way or the other, but merely to point out that until you choose which way you are going to invest clients’ money you will not be able to choose the other support structures required for your business. Many advisers utilising strategic risk allocation and/or Dimensional do not require a platform for example as this style of investing requires very little fund selection allowing advisers much more time to spend on strategy and rapport building with clients and referral sources.

Do you have the skills to be an investment manager or a successful financial planner?

There are still a large number of advisers who utilise strategic asset allocation (SAA) to support their portfolio management. Advisers using SAA take on the responsibility of choosing an appropriate fund selection and asset allocation for each client and maintaining an appropriate selection going forward. This process is both time-consuming and does not necessarily put the best skills of the adviser to use. Many articles have been written recently about be skills required to be an investment manager versus those required to be a successful financial planner. Suffice to say that it is rare for one person to have both sets of skills.

Once an adviser has chosen how they wish to advise clients on their investment management process, then they can choose whether they need a platform, which one and which financial planning software, whether it be Xplan, Coin or any other software to best support the database and SOA production process.

Have you factored in the cost of providing training to your staff?

Financial planning software is necessarily very complex and therefore needs appropriate skills and training to be able to maximise the efficiency gained from it. Financial planners therefore should budget for appropriate staff training and software implementation when choosing to change or implement new software is not. As the financial planning industry is now very dependent on IT  for compliance, marketing, client management and staff sanity this is one area that should not be overlooked.

Can your Customer relationship software handle the growth of your business?

Due to the technical nature of many financial planning software programs the ability to use the software for marketing has often been neglected. In this day and age it is necessary for the software that advisers use to be an excellent database and client Administration program that can be used for all types of marketing.

Financial planning best practice would dictate that the best financial planning businesses in Australia today have realised the importance of consistent interaction with clients. This might seem obvious but until recently many financial planning businesses were running both a CRM program as well and is a financial modelling program due to be in adequacies of the database management system within the financial planning software.

The style of investment management chosen will determine the type of administration required. As mentioned previously those advisers that outsource investment management into a fund of funds, Dimensional or SRA approach have little need for a platform. This can result in significant cost savings to clients without any adverse effects on net returns to clients.

Advances made by IT over the past five years has made platforms for ordinary money almost unnecessary due to the ability of direct data feeds from Morningstar into Xplan. Premium and other services such as Insight Reports which enable reporting on many types of assets such as structured funds, direct property and agribusiness which cannot be reported through a traditional wrap or master fund, and enable clients to own the investments in their own name as opposed to via a custodian.

It is possible in this day and age to have a successful financial planning business with a rigorous compliance regime and yet be a very simple business model in comparison with many other industries which have to control stock levels or manufacturing processes.

Whilst the choices are plentiful, help is at hand

There are many other factors which need to be considered when establishing a financial planning practice including size and location of office, signage, dealer group selection or own AFSL as well as website development and marketing plan. Specialists are now available in this industry to assist with all of the above to help financial planners wishing to start a new financial planning firm, or relocate out of an institutional environment into their own practice.

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