How to Start a Financial Consulting Firm

Part 1 - How to start a Financial Consulting Firm business - Background

A financial consulting firm helps individuals and small businesses manage and grow their wealth. You are more likely to service individuals than large corporations, but your small business should be prepared to do both. Clients will look to you for detailed financial information, informed financial forecasting, and ways to invest to achieve their short-term and long-term goals.

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Our guide is in 3 parts:

• Part 1 - How to start a Financial Consulting business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a financial consulting firm?

The costs of opening this business are somewhat deceptive. Once you have the appropriate license, there is virtually no cost to opening this business: many financial planners start out working from home and meet clients at their place of work, their homes, or other venues. On the other hand, a four-year degree is mandatory for most certifications, and that has an average cost of $40,000 for the degree alone (for in-state, public colleges). If your college coursework was not already Board-certified, then you may spend between $1,000 and $4,000 to take additional classes for a certification like the CFP, and an additional $595 to take the exam. Because of its importance, many people opt to take review classes or buy review materials, and this cost can range from $400 to $1400. After passing, you need to work full-time in a relevant field before you can meet the experience requirement of the CFP. Thus, while the costs of opening the actual consulting business is almost nothing, the education and certification required can easily be $90,000 or more, and there is the significant time investment working for someone else before you can work for yourself.

What are the ongoing expenses for a financial consulting firm?

If you work from home, then your ongoing expenses for this position are virtually non-existent. Most of your actual financial planning is conducted via the computer that you already have, and you do not need to pay for expensive overhead or utilities. Your most regular fees will be the gasoline cost of meeting with clients and the cost of meetings such as business lunches, both of which are potential tax write-offs for you.

Who is the target market?

Younger clients, such as those who are completing college degrees and/or coming into their inheritances, may be curious about financial planning for the first time. They are more likely to be open-minded about the advice you give and, if they like the results you deliver, may actually become lifelong clients.

How does a financial consulting firm make money?

Two ways that financial consultants make money are to take a percentage of the sales charge (basically, a commission) made by the client when they invest and to receive a “trail” from some of the operating expenses of an investment such as a mutual fund. Other consultants are paid by certain fees they charge clients, and some consultants become fee-only advisors.

How much can you charge customers?

How much you charge clients depends on your payment model. If you are being paid via fees, then it is reasonable to charge them between .75% to 2% of the collective assets that you manage. Commission costs have a greater range, ranging from 1% to 8.5%. With both fees and commissions, you typically charge lower percentages for higher amounts on transactions. It should be noted that many clients, firms, and consultants have become wary of commission-based models, as there is always the possibility of an advisor encouraging and investment that is good in the short term for the advisor but not in the long term for the client.

How much profit can a financial consulting firm make?

The Bureau of Labor Statistics estimates that the median pay of this job is over $90,000 a year. Your actual profit may be higher or lower based on your payment model and number of clients.

How can you make your business more profitable?

Make sure that you are reading relevant trade publications and other sources that let you keep your finger on the pulse of industry changes. Make sure that you show genuine interest in the lives of your clients whenever you speak—this makes their time with you feel more like a valued relationship. Finally, always volunteer with professional organizations when you have the time—it’s great networking, great PR, and a great learning opportunity.

Day-to-Day and Growth

What happens during a typical day at a financial consulting firm?

There are several daily activities in the life of a financial consultant. You may spend time prospecting for new clients, helping your existing client base (which ranges from reviewing their portfolios to meeting with them in person), filing paperwork (such as compliance reports and the records of your clients) and using various software and other methods to conduct financial planning.

What are some skills and experiences that will help you build a successful financial consulting firm?

For better or for worse, most of the skills you need will come from your formal education. Becoming a financial consultant typically means getting a particular certification, such as the CFP (Certified Financial Planner). Getting something like a CFP requires a four-year degree followed by additional certification training and the successful completion of a Board Exam. After you have completed this rigorous training, however, you will have all of the necessary preparation and skills to get started.

What is the growth potential for a financial consulting firm?

The growth potential for this business is immense. The Bureau of Labor Statistics projects this field to grow by thirty percent between 2014 and 2024, aided in part by rising life expectancy and the increased need for financial planning.

What are some insider tips for jump starting a financial consulting firm?

Two related tips are to figure out your own niche and to figure out your best audience. For instance, you may have more success focusing only on portfolios, or only on wealth advising. This allows you to become a true authority in one area rather than trying to do it all. Similarly, you need to identify a target audience: someone focusing primarily on retirement will primarily serve older clients, and it’s important to understand their concerns and values. Finally, don’t neglect traditional networking: attend as many trade shows and other professional events as you can.

How and when to build a team

Most consultants prefer to work on their own because it significantly reduces the overhead, allowing them to functionally work from home and on the road as opposed to leasing a separate office. If, however, you’ve successfully built your brand and have more prospective clients than you can handle, it may be time to take on a small team and to eventually build a firm. However, both sharing clients and paying for this lease and utilities will cut into your profits, so it’s important to make sure that you will profit from this move.

Part 2 - Is a Financial Consulting Firm business the right fit for you?

Part 3 - Action plan to launch your Financial Consulting Firm business in 90 days