While starting a business can be both an exciting and a daunting experience for young advisers, it is important not to rush into it but to plan each step to ensure the business will prosper.
WHEN STARTING any major project it is essential to first do your research – and for starting a new business, given the high stakes, this is especially important.
In fact, according to Matthew Hawkins, director of Scanlon Richardson Financial Group and national chair of the AFA's young adviser group GenXt, when it comes to setting up a new business, "research is everything".
"When you are starting up your own business you have to look at corporate structure; joining a licensee that aligns to your ethos; and [looking into] the way you want to do business," he says.
In conducting this research, Phil Thompson, director of Melbourne-based advice practice Thompson Financial Services, says aspirants should ask questions of "everyone and anyone" to learn as much as they can.
"Any adviser wanting to go out and start their own firm will feel like they are about to jump in the deep end, and that can be scary, but it is also exciting," Mr Thompson says.
"This industry is full of very generous practice owners and advisers who are more than willing to give up their time to help you succeed."
Advisers, he adds, should look back on what other business owners have done and learn from their experiences.
"There are many advisers who have trodden the same path as you so learn from them and ask what they are doing well, what isn't working for them, what they could be doing better and if they are willing to share with you their in-depth processes," he says.
With aspiring business owners eager to start earning money straight away, many overlook three key research areas: client selection, choosing a licence provider and knowing how to structure their fees.
The right clients
For Wealth Enhancers' co-founder, Sarah Riegelhuth, when starting a business, client selection is paramount and the type of client needs to align with the type of advice that advisers want to provide.
But given the desire to bring in money straight away, Ms Riegelhuth says it is important not to get carried away with taking on every single client who appears. Rather, selectivity is key.
"If you are not buying a business and you are literally starting it up from scratch, it is very important to work out who you want to work with," Ms Riegelhuth says.
Clients need to fit the type of advice being offered and so going out and trying to service anyone and everyone who comes through the front door is not going to work, she adds.
"Also, when you start employing team members, if it is completely different every time you get a client, it just becomes challenging for them as well," she says.
Choosing her client base came down to her having a passion for wanting to help those in Generation Y.
"We did a lot of research, we worked out what worked for our particular target market and we were really passionate about helping those types of people – and I think that is really important," she says.
Mr Hawkins also emphasises that the prospect of revenue should not distract new business owners in their choice of client.
"[When] starting a new business, because you don't have any revenue and you are starting from scratch, you generally want to take any client you want," he says. "But you can't always meet the needs of every client and I think a lot of advisers forget that in the first 12 months when they are so hungry to build a business and to have sustainable income."
As well as ensuring they take on clients who match the type of advice they want to offer, advisers should also chose a client base with which they enjoy working, says Ben Nash, director of newly-established advice practice Pivot Wealth and co-founder of XY Adviser.
"This will make sure you love going to work every day and make it exciting when you're building things onto your service offering for your clients," Mr Nash explains.
"Also, I think you need to be able to connect with your target clients and understand their key wants.
"For me, I was attracted to helping people that were working toward getting ahead with their finances, which pointed me toward our current ideal clients which are young professionals, executives, and business owners," he says.
"The fact that I am a young professional and business owner myself I think gives me a head start when I think about the most important problems of my ideal client and the things that concern them.
"I feel this has helped me to build a more relevant and valuable service."
Aligning with the right licensee
While advisers need to research and be selective in the clients they want to work with, they also need to consider the right type of dealer group or licensee for their business.
New business owners need to have a "really good understanding" of how they want to run their business before making a decision about whom to align themselves with, according to Mr Thompson.
"Understanding how you want to run your business is paramount to determining your licensee and these needs may change as you and your business change and develop," Mr Thompson says.
"Some licensees will provide really great business development training, mentoring, assist you with outsourcing your administration work or paraplanning and have regular professional development days.
"There are other licensees who will help you fulfil your legal obligations while letting you find your own feet when it comes to running your business," he says.
Mr Hawkins adds that when selecting a dealer group, an adviser needs to consider what value the relationship can add to their business.
"For me, it's getting what you pay for," he says. "I am happy to pay a licensing fee if I can see value in what I am getting.
"Value comes in two forms: it comes in either practice management support, or value from an independent side of things and the way that you sell advice to your clients.
"Bank-aligned might be perfectly suited to some young advisers because they like that touch and that assistance that a bank-aligned licensee provides, [whether that be] practice development or BDM support," Mr Hawkins says.
Some advisers, however, may not need that type of support and may opt for a non-aligned licensee that offers different resources, such as a strong network, mentoring or professional development days, he adds.
When researching and choosing a dealer group, advisers should also look into their type of brand and reputation which, as Ms Riegelhuth explains, can have implications for the brand and reputation of their own business.
While advisers are becoming more aware of the reputation that individual dealer groups and licensees have, many are still not taking brand and reputation into consideration, she says.
"I think it is also really important because your brand then gets attached to that licensee," she says.
"You have to look at the reputation that licensee has in the market and work out whether you want to be aligned with that brand."
Charging the right price
Of all the research that advisers need to do before starting their own business, price setting is always the most difficult task. With a lot more advisers looking to charge fee for service, constructing and establishing a price guide can be challenging.
Advisers should charge fees that are consistent with the amount of time spent working with clients, says Mr Nash.
"I would say also to not be concerned about charging high fees if you're giving lots of value because people understand that if you're going to do a lot of work for them that you should be compensated accordingly," he says.
Mr Nash adds, however, that it is important clients clearly understand which fees are being charged for which type of advice.
"There are many different methods of charging fees, all with benefits and disadvantages, but I've found that clients need to understand what component of their fees is for what service," he says.
"This allows you to avoid confusion in the future and clearly explain to clients the scope of the advice you will provide going forward."
Wealth Enhancers' Sarah Riegelhuth says that when it comes to establishing fees, finding the right balance between what the adviser brings to the client and the cost of delivering the advice is crucial.
"I think you need to look at the advice you are providing and cost it out," she says. "Our membership fees are costed out based on what it costs to deliver that service. It took us a long time to get the fees right – we played with a lot of different models.
"I think it is a cross between all that because you want to build profit in there as well, but you have to strike a balance," she says.
SUBSCRIBE TO THE IFA DAILY BULLETIN
- 20 Jul 2018CPA shuts financial advice divisionBy Reporter
- 20 Jul 2018Don't neglect AI, advisers warnedBy Tim Stewart
- 19 Jul 2018AMP unveils new in-house training programBy Reporter
- 19 Jul 2018Self-licensed adviser cops 4-year ASIC banBy Reporter
- 19 Jul 2018Hub24 to launch new core offeringBy Reporter
- 19 Jul 2018SMSF sector warns about advice ‘exodus’By Miranda Brownlee
- view all