Starting up a financial advisory practice is a complex matter. After you have thought about the meetings and other client contact you will have and how you would make use of a paraplanner or an administrator within the business, there are just a few more details you need to think about before taking the big step of thinking about pricing your new financial advice service.
Some final issues to decide will include:
Location
If you are branding your practice as a professional firm, will you make use of office space or will it be acceptable to work from home? Will your clients expect to visit your offices during the day, just like they would have to if they were visiting their accountant or solicitor, or will you spend time (which equals money and cost) travelling to see your clients? There is no right answer, but your decision will affect the overall branding of your business and the costs of the services you will be offering.
Software
Back-office software is increasingly important due to the requirements for firms to share data with the regulator, networks or compliance services, and clients. But think how you will use it and how it integrates with other aspects of your service so that it is worth the investment of time and money, instead of being a burden that will constrain your business development as opposed to facilitating it. Will you be able to tailor workflows to how you work?
Research tools
Many advisers still live without access to product-research software, risk-profiling tools and fund-research software. Monthly costs can seem high, but if you learn to use them effectively, and use them in association with effective business processes, you will save money in the long run.Don’t forget to remind your clients that you pay for access to this material so that you can provide them with the best and most up-to-date information, research and recommendations.
Financial planning
Clearly this element depends on whether financial planning is to be an important part of your advice proposition. However, the ability to get right to the heart of a client’s financial situation and to set that out simply – usually with graphics and occasionally with “stress testing” (or Monte Carlo simulation) – is not just a cost, it is also a key element of a business proposition for which your clients will pay you.
Other technology
Nowadays you could have a long-distance relationship with a client by making use of a client portal for your back office or platform, and making use of Skype for voice or video calls. You could use join.me to share your computer screen to present a financial plan, work through the numbers and demonstrate alternative strategies. You could use Powwownow to provide cost-effective conference calling facilities so that portfolio managers or discretionary stockbrokers could join your conversation.
As with all software, it is vital to invest time in understanding how it works and deciding how best to incorporate it into your firm’s processes. Much software will not save you a great deal of time if you have to learn how to use it every time you open the program, or if every client you see will get a different service.
You may, for example, decide on some core product or fund-selection criteria, which will be consistent across most – if not all – of your clients. Although, if you are operating an independent advice business you will, of course, retain the option to adjust those criteria if client suitability requires it.
Put together a suite of standard letters that covers all the key components of the service from the very first meeting to annual review correspondence. Think about writing letters in ways that maximise the chance of them being able to be reused. Use the ‘highlight text’ facility to remind yourself which bits of any letter or report need to be edited.
Include optional text in your standard documents (for example, “you agreed to opt in to the annual review process/you decided that you would opt out of the annual review service”) as it is much easier to delete the text that is unnecessary than it is to remember all the variations of text that you might need to include.
Set out a process that you and your staff can easily follow. Clients will be reassured that the firm is in control of the planning process, and staff will more easily be able to help with the administration as they will have clear instructions as to which tasks to perform and when.
This helps with being efficient and cost-effective, but it also helps with being able to deliver a consistent service – a key part of marketing in professional firms where the services you deliver could be very different for each client.
Finally, just before we start getting into the detail of working out the costs of your advice service, think about how much time you and your staff will spend on activity that is not directly chargeable to any one client.
For your administrator, this could be something as simple as opening the post at the start of the day and going to the post office at the end of the day. For your paraplanner, this might include continuing professional development events. For you, the business owner, this might include compliance activity, study time, regulatory reporting, strategic planning, networking and business development.
These are activities that are important, and they are activities for which you will be remunerated. However, as they are not attributable to an individual client, their implied cost is an overhead spread across the business as a whole, in much the same way as other costs such as rent, software subscriptions and regulatory fees.
Thinking this through will enable you to work out how many chargeable hours each person within the business has available to them. Whether or not you end up charging clients on the basis of an hourly rate, I have found that knowing the hourly cost of delivering services and the time you spend delivering them remains the simplest way to develop your pricing strategies and to work out whether any particular client is profitable or not.
At last, we are ready to think about what is probably one of the most contentious areas of building a financial advice and planning practice: what types of fees we may charge, for what services and at what level.
Gill Cardy is managing director of IFA Centre
Key points
• Will you use office space or work from home? Think about your professional image
• What back-office technology will you use? Consider both regulatory record-keeping and integration with other aspects of your service
• Research tools can help with risk-profiling and fund research. They can add value if used well
• Using graphics and simulations can add value to the planning process
• Don’t forget about Skype, desktop-sharing and conference calling
