How Much Capital It Takes To Grow An IFA Business?

28th April 2020

This article first appeared in Professional Adviser

We’ve worked with any number of start-ups over the years, writes IFA firm chairman Simon Goldthorpe, and the one question that always crops up is how much capital is needed to establish a business and grow it into a sustainable, profitable practice.

Without stating the obvious, success isn’t always measured by the size of your client book, but instead measures such as the turnover of assets under management.

Sustainable and profitable growth comes when you take on clients that can be serviced effectively at an agreed charging structure. This makes getting your proposition, as well as associated budget, right, absolutely essential.

If you’re thinking about going it alone, there are five fundamental areas you must factor into your budget and strategy:

Five Areas of Spending

  1. Office space and technology

Many small IFA practices start at home or in local serviced offices. But if you’re looking to grow, you’ll need to think about scaling up your premises.

A rule of thumb would be 100-150 square foot per member of staff, so it’s worth factoring in any additional employees you’ll want to bring on board before reviewing rates in your local area.

Upsizing premises may bring associated technology costs, like upgrading your network, cabling and communication systems. Will you need to invest in landline phones, for example?

  1. Insurance and Professional Costs

It goes without saying that you’ll face additional insurance and professional costs as you expand. For example, taking on new advisers will result in additional FCA costs, as will undertaking new types of work, such as defined benefit transfers.

If you’re thinking about bringing in any additional services down the line it’s always worth checking the associated costs at the start.
  1. Staffing

You’ll no doubt need to recruit at some point, be it by hiring new advisers and paraplanners, or taking on support staff to handle the day-to-day running of your business.

Doing it yourself by placing adverts on job boards or in the local media will be cheaper, but first consider if you have the capacity to sift through hundreds of CVs while serving clients.

Using a recruitment agency will save the legwork of finding suitable candidates, but fees will be up to 20% of a candidate’s salary.

  1. Marketing

Marketing and brand awareness are key to attracting clients that are the right fit for your business. Tactics sit at all ends of the scale depending on objectives and budget – from targeted sponsored social posts and branded print collateral, to an overhaul of your referral process and developing a high-quality website.

Costs and work involved with vary from strategy to strategy, from a £100 social media campaign to spending £5,000 or more on a sophisticated website.

  1. Outsourcing Tasks

Focus is what helps successfully build a business but, as you move into expansion, it’s likely you will be pulled into multiple directions at any one time.

As you begin having to tackle areas outside of your prime skillset, it might be beneficial outsourcing functions such as:

  • Compliance
  • Finance/Accountancy
  • HR and Payroll
  • IT Management
  • Legal
  • Marketing

It goes without saying that providers will vary in terms of experience and price, but this makes it all the more important to shop around to find someone who ticks all your boxes.

So, how much capital do you need to grow?

The truth is that I have seen mediocre firms grow on a massive budget, but I’ve also seen brilliant IFA businesses grown on a shoestring.

Most important of all is setting a strategy before budgeting for anything, and then carefully reviewing over time to ensure everything remains aligned. The time frame for this will vary from business to business, but 12-18 months would be a good amount of time to understand how well this is working for you.

Always reach out to others in the industry too – joining networks like The Chambers of Commerce will be a good way of finding other business owners who have faced similar challenges. Talking through growth plans and sharing issues will help you refocus and stop you from feeling alone.

Most organisations know that they have to invest in their infrastructure, people and marketing in order to acquire new and better clients. Just how much you spend on those areas depends on your own business and how quickly you want to grow, but being clear on your long term objectives from the outset will ensure all decisions fit with what’s right for your business.