How to Build a Wealth Management Practice

Building a wealth management practice gives you the freedom and autonomy to do business as you see fit.

And despite recent market headwinds, the wealth management industry remains full of opportunity.

As more middle-class and affluent individuals prepare for retirement, some say there's no better time to be an RIA. If that's the case, it's no wonder the wirehouses have seen a net loss of financial advisor talent.

Steven Tenney, founding partner and CEO of Great Diamond Partners, shares a similar sentiment. He said that more advisors are considering independence in 2023 for two reasons: 

  • they want to serve their retirement clients differently
  • the support ecosystem available to independent firms is much better now than it was 10 years ago
"The whole independent ecosystem... has evolved so much, and for the better. All the parties have improved the way they can support independent advisors — the custodians, the lenders, the investment platforms, etc. The competition among these support organizations is really strong, and that is having a phenomenal impact on firms like ours."

- Steve Tenney

Whether or not you plan to serve retirement clients, it makes a lot of sense to set up a wealth management practice.

Reasons Why to Go Independent as a Financial Advisor

“Independent advisors are the growth story of the advice industry. We will continue to see momentum accelerate as more advisors choose to move to the independent model, confident in the knowledge that it is a better way to serve clients while also offering the opportunity to build and grow something of their own."

-Jonathan Beatty, senior vice president, head of sales and relationship management at Schwab Advisor Services

1. Limitless Earnings Potential

Of course, it's a lot of work to start up a wealth management organization, as you'll see below.

But if you run the business well, the sky is the limit. There is no maximum to how much money you can make.

You determine the fees and you don't have to split your earnings with the wirehouse or bank.

2. Enjoy the Flexibility

You're not forced to push investment products that a wirehouse wants you to sell.

Nobody is telling you when and how to work. You set your working hours, where you work, and the way you get things done.

You will be the visionary, the master planner, the trailblazer, the decision-maker....

And those who go independent are mostly happy with the move. According to a survey from Charles Schwab's Schwab Advisor Services, more than 90% of survey respondents reported they have no regrets about their decision to go independent.

3. Do More Meaningful Work

When you do things your way, you have a greater sense of purpose. You'll have a greater impact and sense of satisfaction as it's you who is improving the financial well-being of the client and their family.

The same Schwab Advisor Services survey revealed the following:

  • 94% of respondents said becoming an RIA was driven by a desire to do what's right for their clients.
  • 73% said (going independent) was to build better, longer-term relationships with customers.

8 Recommendations and Requirements to Build a Wealth Management Practice

1. Create a Business Plan

The business plan is foundational to your success.

Set your goals, create a mission statement, and determine the strategies you'll need to achieve those goals.

Also, determine the products and services you will sell, as well as the target market for said products and services.

Think about resources:

  • How will you finance starting up the business?
  • Do you need to raise capital from investors?
  • How will you budget?
  • What human and technology capital do you need to successfully run the business?

Having a business plan allows wealth managers to maintain focus on what matters most for setting up the business. Without a plan, it's easy to lose focus

Learn more about how to create a business plan.

Many of the points outlined in a business plan will also be addressed in more details in some of the sections below.

2. Obtain all the Necessary Licenses

Your organization won't go anywhere without the required credentials.

Make sure you are fully licensed as a financial advisor before you even register for a business license.

If you're already practicing, you probably have your Series 7 or Series 65 and Series 66 licenses. You might also have CFP, CFA, ChFC, CIC, or PFS certifications in lieu of the Series licenses.

Whatever your jurisdiction requires for you to practice as a financial advisor, follow those instructions.

After that, now you can confidently apply for a business license. For the US, every state has their own requirements, and you can learn more about how to get a business license in any US state.

And if you plan to sell insurance products, that may require additional licensing.

3. Determine Your Target Market

Do you want to serve (ultra) high-net-worth individuals? How about retirement planning?

Consider some promising stats for these markets:

  • The number of ultra-high-net-worth individuals globally hit a record high.
  • Total investable assets controlled by women are expected to rise to $30 trillion dollars by the end of the decade. (McKinsey)
  • Inflation and market volatility have put more pressure on retail investors to get financial advice and retirement planning they can trust. (Goldman Sachs)
  • The number of affluent households—those making more than $125,000 a year—in minority communities has grown faster than the general population. Affluent Black/African American, LGBTQ+ and Hispanic/Latino households have grown by 65%, 76% and 81%, respectively, compared with the 53% growth in the broader population. (Merrill Lynch)

4. Consider USPs and Key Differentiators

When establishing a business, you have to ask yourself, "how are we different from our competitors?"

You're not the only wealth management firm out there and in your area.

But you can still differentiate yourself and determine your unique selling points (USPs).

  • Do you have niche investment knowledge?
  • Will you work well with a particular group or demographic?
  • Do you have any plans to deliver an exceptional client experience?

These are just a few areas to think about, but ultimately you will have to figure out how to promote your key differentiators.

5. Create Your Team

How many people will join your team? Financial advisors, portfolio managers, client relationship managers, operation managers... who do you need?

Are you starting the business with former colleagues? How will you plan to recruit, vet, and hire the staff?

What about sales and marketing?

There are many questions to ask, but in any case, make sure you have the right personnel. A bad hire or the wrong business partner early on will make it hard getting your business off the ground.

Consider some of these trends in hiring.

Incorporate Third-Party Wealth Management Services Providers

Not all work is a full-time job. Instead it might be part-time, even just a few hours a month.

And not everything a firm does is core to their business, and they're not always good at those activities.

In short, there's no need to hire in-house for everything.

Instead, it's easier, cost-efficient, and more flexible to partner with qualified third-party wealth management vendors.

Functions like IT, accounting, compliance, and middle- and back-office operations can all be done by outside services providers for wealth managers.

6. Build Your Tech Stack

Download Our Automation Guide for RIAs.

There is a lot of technology that goes with being a wealth manager: portfolio accounting software, trade order management systems, risk management systems, client-advisor portals, CRM Systems...

When looking at wealth management fintech platforms, look for all-in-one solutions, like our TAMP1 platform. Also, incorporate AI and automation into workflows that don't require as much human intervention.

Additionally, find systems that consolidate as much functionality as possible, and make sure you are getting the most out of the features.

Older and larger firms can only be envious of newer firms in this regard. Bigger and older companies often laid down a technology infrastructure years ago, and even if they wanted to switch to better and more modern systems, it's extremely difficult because they're "trapped" in the legacy tech. All their workflows are based around the older software.

Starting a wealth management practice today, you won't have those issues. You can have everything cloud-based and consolidated, making use of machine learning and bots for various functions.

While machines and bots can do a lot, a human still does certain things best. Check out our post: 5 Investment Management Jobs Where Humans Are Needed Most

7. Determine Your Marketing and Sales Strategy

If you're breaking away from the wirehouse, you might take your existing clients with you.

Maybe you have a strong referral network, where word-of-mouth sales will build up your client base.

But you can't always count on those approaches for business. You have to have a mix of sources, finding the best channel to reach your desired markets.

Consider a few different methods:

Set benchmarks and goals to achieve in sales and marketing. Test out different methods. Find out what channels work best, then devote resources into the areas that help grow the business faster.

8. RIA Compliance: Register with the SEC or State Government

You can't be fully functional until you are compliant with the relevant regulators.

When it comes to US firms, if you manage over $100 million in assets or expect to surpass $100 million within 120 days of registration, your firm must register with Securities and Exchanges Commission (SEC).

If your firm manages less than $100 million, there are certain cases where you still must register with the SEC, but otherwise you must register with the state government in which the firm has a physical office, has at least 5 clients, and where active solicitation of business takes place.

The form you will fill out, the Form ADV, will not only be needed for the initial registration, but some sections of the Form ADV will need to be amended and updated annually for compliance.

We at Empaxis can automate the Form ADV registration for the 13D and 13F sections for wealth managers.

You can learn more how about how to register with the SEC and how to register for different states.

Build Your Own Successful Wealth Management Firm

As you see how to start a wealth management practice, it requires a lot of time and effort, but in fact the rewards are great.

No longer sharing revenue with a wirehouse, it's just another reason most independent RIAs have no regrets breaking away.

And success cannot be had without a plan. Put in the effort to make a business plan that details your strategy and how you will execute it.

There is plenty of opportunity out there for those are willing to put in the work.

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