Starting an advisory practice is not as easy as it was before. Here are some pointers for both start-ups as well as established advisors to build a successful practice.
The advisory profession today is attracting a new breed of talent who have taken up this profession after giving up their well-paying jobs. This crop of advisors has realized that the advisory profession like any other business requires time and money to sustain and grow. Today, advisors are investing in office space and hiring the right talent to cash in on the huge opportunities which remains untapped in a market like India.
So, if you are contemplating to give up your job and become a financial advisor there are many things which you need to keep in mind.
Here are few checklists which would help you prepare the groundwork for starting your advisory practice:
- Spread the word: Tell about your plans to your friends, family members and colleagues. They are most likely to support you and perhaps share some ideas which might be worth considering. They might be comfortable to entrust you with their money since you already have their trust.
- Collaborate: Two minds are better than one. Financial advisory is an art, science and maths. If you feel that you lack in any one of these areas you may consider bringing in a partner to build a strong foundation.
- Business plan: It would help if you have a concrete business plan in place before you start off so that you don’t go off track midway. For instance, what kind of clients you would like to work with? Would you charge fee? Would you provide purely fee based financial planning services? Would you like to become sub-broker or do businesses under your own brand?
- Start slow: Start by catering to say 10 to 15 clients first. If you are unable to meet the expectations of your initial set of clients properly it is unlikely that they’ll provide you any referrals. Identifying your type of prospective would help. Make a list of prospects you would reach out to.
- Be visible: Today, most of us like to do research on internet before buying any product/service. It would help if you have a basic website which provides details about your background, services and contact details. Having a website helps prospects get to know you better.
- Fee structure: You don’t have entry loads to cover your cost of acquisition anymore. Instead of onboarding clients for free initially and subsequently asking them to pay fee might prove counterproductive. It may not be advisable to charge one set of clients and not charge another set of clients. This may fuel suspicion and doubt in the minds of your clients. It is better to apprise prospects about your way of working and the kind of value addition you would bring to the table in return for their fee. There are various ways through which you can charge fee from your clients – percentage of AUM, one-time fee, fixed annual fee, etc. There are pros and cons of each fee structure. For instance, charging a fixed annual fee may not give you the flexibility to hike your fee mid-way. On the other hand, charging a percentage of the AUM would help increase your fee income if there are ‘mark to market’ gains.
- RIA: So far only a handful of advisors have registered with SEBI as Investment Advisers. Registering with SEBI comes with its own set of compliance and costs. Consult advisors who have already registered with SEBI to evaluate whether registration is required in your case and how it suits your plans.
- Stay updated: Read about the developments affecting our economy and the world to stay abreast. Study the products available in the market. Make yourself familiar with all the regulations/code of conduct.
- Brand: Your company’s name should reflect the services and values you would offer. This means zeroing in on a name and an appropriate logo.
- Differentiate: There are hundreds of financial advisors in the market offering services to clients. It might look difficult to differentiate yourself in this crowd but it would be worth pondering over it. For instance, can you offer your services exclusively to a specific set of clients, say doctors, lawyers, or businessmen? Also, can you only concentrate on acquiring clients who earn say Rs. 20 lakh to Rs. 50 lakh per annum? This will help you focus your efforts and offer better solutions to your clients. Such client segmentation is already prevalent in developed markets. There are financial advisors who cater only to athletes, army personnel, college professors, etc.
- Technology: Technology can be a real boon for your practice. Youngsters and many professionals like to transact online. Facilitating online buying, switching and portfolio viewing options can be of great utility to your clients. There are numerous software available in the market which help you do risk profiling, maintain database, CRM and design financial plans. You may not be able to choose the right software/technology before you begin your practice as it is only after you use them that you would get to know what you need. But it would be worth spending some time evaluating various tools/software.
- Legal structure: Carefully choose the type of company you would want to form. If you are starting solo, sole proprietorship (or partnership if you have a co-founder) is the only option available. Many advisors today are converting their practice to Limited Liability Partnership (LLP) so that their liability is limited to the capital put in by them. An LLP exists as a spate legal entity which means that liability for repayment of debt and lawsuit is on LLP and not the owner.
A lot of advisors have started their practice after the entry loads were abolished and most of them have indeed made their mark. If you have the right vision and plan to start your practice there are immense opportunities to grow and prosper.
Share with us your thoughts on how you can build a successful practice
