Compared to other professions, the capital that one needs in order to become a financial advisor is so small that we often get lured into thinking we should not spend anything on becoming a financial advisor; however, this perception is far from the truth.
I learned this very truth from speaking with Keith Chapman, an 18-year veteran in the financial advising industry, as well as a military veteran in Russian intelligence. For the past 18 years, Keith has utilized the Lifetime Economic Acceleration Process, otherwise known as the LEAP System. During this time, he has mentored 14 other advisors.
What he has found through mentoring is a reluctance to invest in the business. Inherently, individuals entering the financial planning profession see the appeal of the very low barriers to entry. There is no certification requirement (although the learning and discipline are well worth the money in earning your CFA or CFP), and you can even begin business out of your house, which limits the need to put down rent.
Creating Your Business; Making the Investment
Being in the construction business before entering the financial advising industry, Keith gave me an analogy that he has used with his mentees: look at what skilled laborers spend to start their own business. He has used this analogy with his own business and to help 14 others start financial advising businesses of their own. He uses the example that for a plumber to start a business requires an initial investment of nearly $100,000.
Getting into the trade, whether it is carpentry, plumbing or electrical work, is an investment. A quick Google search found these statements on the initial start-up costs of such trades:
- From eBay – For those interested in becoming involved in this ancient trade of carpentry, the 10 tools every carpenter should own are covered in this guide and can provide a great start. From a place to store all of these tools to the hand tools and power tools themselves, the basics of carpentry are easy to learn with the right foundation.
- From www.startupbizhub.com – Starting a plumbing business entails registering your business, acquiring a plumbing business license, and even acquiring plumbing business software so that you can bill your clients immediately and precisely. Your business success is dependent on two things: how well you do your job (so that your clients will seek and refer your services often) and how well you advertise your trade. As a plumbing business owner, you know that your services will not have a running start unless people know that you are a plumber and that your services are available.
- From www.electricianauthority.com – The apprenticeship programs will charge you between $400 and $1,000 per year to undergo on-the-job training under the supervision of a certified technician … Once you successfully complete your apprenticeship program, you will purchase tools and supplies to start your career as professional electrician. If you plan to work as a self-employed electrician, you will have to invest money for the promotion of your business. Aggressive marketing plans will have to be chalked out which may include submitting advertisements in the newspapers, creating a website and posting ads in supermarkets. On an average level, you should be prepared to pay between $2,000 to $5,000 for tools and training, and advertisements and other promotional plans will involve a cost of a couple of thousand dollars every year.
If it costs this much to invest in a skilled profession, why should financial advisors expect to spend so little on starting their own business?
Money In Means Money Out
A study done by Moss Adams analyzed information from a survey on compensation and expenses for financial advisors. For all advisors included in the survey, the average spending for marketing and business development was 1.7% of revenue. This included firms with multiple advisors. Breaking this down by the generated revenue, firms with $100 to $500k in revenue spent, on average, $4,500 for sales and marketing. Firms with $500k to $1M in revenue spent $16,033 on marketing and business development. This data excluded referral fees and salaries for marketing and business development.
I was recently working with an advisor in South Carolina. He was griping over having spent $90,000 on different ways to get leads. He was fed up because the initial outlay of money resulted in some great leads to get companies that were interested in 401ks. This is how he launched his business. But when the lead generation dried up, he thought he could find similar success with another company. He poured dollar after dollar into the program without getting any return, which led to frustration at the lost investment. This is why I believe financial advisors are cautious about spending; they want to make their investment a sure thing.
The point that Keith Chapman is trying to make is that starting any business requires an investment. Starting a financial planning practice requires an investment of money, time and learning. Just because you don’t need tools and a truck is not a reason to skimp on the investment.
Being hesitant about pouring money into something, much like the financial advisor did for leads, is not the right way to go. Having a skeptical outlook on any investment will disable you from becoming a powerful financial advisor.
- See what other successful financial advisors are spending to create their success.
- Identify what types of investments have led to success.
- Create a budget for the year ahead.
- Track the return on that investment – what is the revenue you are able to generate from that investment