When financial advisors get in touch with us at XY Planning Network with hopes of starting their own firm, there's always a lot of fear around the thought of, what happens if I fail?
They may be great financial advisors who do a wonderful job taking care of clients and providing excellent financial planning, but they're not sure how to run the business side of things. They're confident they can learn -- but there's this nagging fear of failure.
All advisors who own their own firms experienced this. No one is immune to the fear of failure or the risk of starting your own business.
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That being said, we want to invite you to ask yourself, what is the worst case scenario? What happens in the event that it doesn't work out? Doing this and going through the process of understanding potential outcomes can be an effective way for you to redefine failure and gain the confidence you need to overcome your fears and go after what you really want.
From our experience, there are 3 common scenarios for financial advisors when they finally make the leap and start their own firms.
1. You Run a Successful Financial Planning Firm
This first scenario is obviously where we all want to be. In this situation, you grow your firm to the point where it supports your lifestyle. You own your schedule and get to do whatever you want with your time. No one tells you what you can or can't do.
You get to go to the kids' soccer games. You can travel at will. You can really build the firm that supports your lifestyle. You're the boss, and you get to enjoy the freedom and flexibility that comes with that.
Succeeding means you're also running a firm in which you get to work with clients that you love. Your clients picked you -- and you picked them! Gone are the days of only working with clients that were handed to you by another advisor.
This scenario -- the potential for this kind of success -- is why people start their own firms.
Truth be told, most of the financial advisors we see starting their own firms do end up being successful for a number of different reasons. A huge one is the fact that it's now relatively inexpensive to start your own firm. This helps to make owning your own business more accessible to more people.
(Be sure to check out XYPN's First Year Budget to see the financial expectation of starting and running your own financial planning firm.)
2. You Launch -- and Eventually Sell -- a Firm
The second scenario sees you go out and start your own firm, but you find it's not growing as fast as you'd like. Perhaps you look at your business and realize you don't actually enjoy dealing with the technology that you need, the marketing you should be doing, or the compliance you have to deal with to keep things running smoothly.
Growth is slow and the obligations of keeping the ship afloat on your own aren't what you wanted when you set out to create your ideal business. And that's okay, because there are plenty of opportunities for smaller practices to be bought by larger firms. This is an option we see many financial advisors eventually take.
Your firm may get bought up by a larger firm because that company is interested in your client base . Or they could be interested in you specifically, and the skill set you can bring to their table.
And there's huge value in people who have run their own businesses. Failing does not make you less marketable! You know what it takes and that's unique knowledge that provides unique value for other firms who can hire you as a specialist inside their business.
Understand that there's such a talent shortage among advisors, and there are more CFPs over 70 than under 30. And there's high demand for the professionals with experience and understanding of what it takes to run a financial planning firm. Even if you do "fail," you'll be more attractive to firms that are hiring and you'll likely find yourself choosing between multiple job offers.
3. You Totally Crash and Burn
You don't find any clients, you have no success in biz development, and it just doesn't work for you. What will you do if that happens?
You could take a job working as a junior planner in some RIA around the corner, right? And that's probably exactly what you're already doing. You're living your Plan B right now -- which means you're already living your worst case scenario.
Starting a firm doesn't require a ton of capital and it's not overly expensive. You don't need big loans and you don't need to take on a lot of risk. You're not putting too much at stake in terms of money to start your own firm.
This means if you do fall into this third scenario of "totally crash and burn," you'll still be able to access the opportunity to continue doing exactly what you're doing now. And you're not going to declare bankruptcy in the process.
We Need to Redefine Failure and What It Means to Take on Risk
In addition to the fear of failure we all share, there's also a fear of risk. Not everyone has insanely high tolerance for risk, but how we define both that and failure affects how we think about what we can and can't do.
XYPN co-founder Alan Moore once moved across the country to work for a financial planning firm -- and 6 months later, he got fired. He was called into the manager's office on Friday and told not to come back on Monday.
In that moment, he realized what he had perceived as job security and job safety wasn't all that safe. 100% of his income was dependent on keeping a single manager happy enough to continue writing checks to him. All of his eggs were in one basket.
Many of us consider it "risky" to start our own firms. But if a client leaves you and you have 20 clients, you're losing 5% of your income. Whenever you diversify yourself by owning a small business with many different clients in addition to other streams of revenue (like freelance writing or speaking gigs), you're never solely dependent on one person -- or even 2 or 3 people -- for your whole income.
This really spreads out the risk you take on when you launch your own business. By owning your own firm, it's actually a lot lower risk than taking a job working for a single employer.
Failure isn't really all that bad or scary when you realize there's always a solution to the situation you find yourself in. If you want to start your own firm, it's time to redefine failure, understand that there are opportunities everywhere, and start taking steps to launching your ideal business.