• Insights

The financial advisory profession in India has been on a path of transformation. The quantum growth in the number of financial products and still greater diversity amongst them has attracted close to three million financial advisors who serve over 180 million investors. The bulk of the lot of financial advisors includes agents, Independent Financial Advisors (IFAs) as well as those employed in the Banking and Financial Services Industry (BFSI sector).

The demand for competent and unbiased financial advisory services is increasing of late and financial consumers now require need-based holistic advisory, encompassing solutions to their insurance, retirement, investment and tax planning needs. This augurs well for the entry of more professionals in the financial planning space. Nonetheless, it is a daunting task to structure one’s own financial planning outfit. It has to be observed that there is a clear distinction between “advice” and “sales” and this is what differentiates financial planning practice from a plain product sales based approach. The element of advice is the cornerstone of financial planning with need assessment providing the base for all advisory. Here are a few key areas that one has to consider for establishing a successful financial planning practice:

The organizational structure
This is an important area of consideration as this would determine the scalability of the venture apart from providing tax benefits and convenience of operation. The various structures could be Sole Proprietorship, Partnership Firm, Private Limited or Limited Liability Partnership (LLP).

Structuring a vision/mission statement
It is a short, precise and accurate description of what an organization wants to become. In the simplest terms, while vision communicates “where do you want to reach,” mission communicates “how do you plan to reach there.” Establishment of a focused vision/mission statement is vital for a definite direction of the venture.

Creation of a robust business plan and model
A detailed business plan can be one of the most effective tools for a sound enterprise. Business plan ideally creates a base for evaluation and viability of a venture. It should provide an objective analysis based on valid assumptions and research. The appropriate revenue model is a critical decision. While one can choose amongst Commission Only Model, Fee-Offset Model, Fee and Commission Model, Fee Only Model or AUM Model, it has to be kept in mind that the selection of the right model is contributory to the success of the venture. While selecting, one should look for a model which provides for transparency and helps in building a long term connection with clients.

Identification of a marketing mix
It has to be observed that with the increasing income levels, changing demographics, proliferation of financial products, innovation and financial engineering, the financial consumers can no longer be serviced with a common single approach. They may need to be segmented and targeted on the basis of their goals, affluence levels, sophistication in products, etc. Therefore, it is important to identify the correct marketing mix, i.e. identification of the service, the revenue model, the pricing and the customer segment on the one hand, and designing a promotion strategy to connect effectively with the target consumers on the other.

Regulatory compliance and staffing structure
The compliance with regulations is the basic hygiene factor. While in the present regulatory environment different financial products are regulated by different entities, it is critical to ensure the fiduciary responsibility. Financial planning has an immense power to influence the financial well-being of clients. For long term success, it is advisable to look beyond the elementary compliance and be one up on the ethical conduct and practice standards. A good certification such as Certified Financial Planner certification has in-built processes and mechanisms for monitoring the conduct of professionals as well as guiding them through their ongoing professional development. Further, the staffing structure should be scalable for future expansion. It may be prudent to keep a flat structure in the initial years of operation while outsourcing non-core activities.

Technology selection
The role of technology in streamlining processes and improving productivity and profitability is indisputable. The use of the right technology also augments the quality of service, the transparency of transactions, the scalability and customer delight, besides enhancing security, optimizing costs and expanding reach. The one-time set up cost of technology is a concern and, therefore, future scalability has to be built into the business plan. The focus has to be not just on the choice of technology, but also on the effective deployment and integration with core business processes.

Standardizing the processes and brand building
In the move towards need-based and process-oriented financial advisory, it is important to standardize the key processes for client acquisition, client handling, advice delivery and client servicing. This would help in building the brand from just a promoter-led entity.

Succession planning and transition handling
While succession planning may not be the primary consideration at the time of setting up practice, establishing a sound succession plan is important for the continuity of business, not just in case of an eventuality but also in case of retirement/departure of key financial planners. Clients view firms through their financial planners and it is important to provide for a gradual transition.

Starting a financial planning practice, therefore, requires careful deliberation on the above to ward off any risk of failure. However, fear should not prevent financial planners from realizing their dream of entrepreneurship in the dynamic and ever evolving field of financial planning. It is a solemn exercise in turn to help clients achieve their dream of financial independence.

The views expressed here are personal and do not necessarily represent those of the organization.

RANJEET S. MUDHOLKAR is working with Financial Planning Standards Board India (FPSB India) in the capacity of Principal Advisor and Member-Board of Directors. FPSB India is the sole marks licensing authority for the CFP marks in India, through agreement with U.S.-based FPSB Ltd.

©Entrepreneur June 2011

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business plan, Entrepreneurship, Financial Planning, Independent financial advisors, investors, Mudholkar, Ranjeet S. Mudholkar, Technology