Why Financial Advisors Don’t Always Make the Best Business Owners

On the surface, owning a business appears to be very rewarding. Putting your time and effort into a business all your own offers the advantage of being able to form something from the ground up. You own the business strategy, unique investment opportunities, marketing, and even clients — no more waiting for approvals or hoping that your firm will adapt new technologies.

Yet despite the appeal of creating and owning a small business, many financial advisors fall short trying to go it alone, regardless of their financial knowledge and know-how. In fact, Fundera found that only about two-thirds of businesses survive two years in business. Why? Because being a small business owner is a challenge. It is a role that demands an entirely different set of skills than effectively managing financial opportunities for investors.

Owning a Business Is Tough

There are a multitude of reasons why you may consider opening up your own advisory firm. Perhaps you’re itching to move and grow your career, and you feel as though your current firm or broker-dealer is holding you back. Or maybe you are seeking a better return from clients, and feel that the percentage of revenue you are giving your broker-dealer doesn’t equal or warrant the returns you’re receiving. Or you may want to branch out to increase your service offerings to clients so you can bolster your value proposition. Whatever your reason, you’re motivated to move forward and start our own venture.

The appeal of running your own business is enticing because the business itself becomes personal — you get to influence and decide each aspect. You determine the clients you want to take on, the boutique investment opportunities, and even the culture you seek to exude.

Yet the overarching challenge is that running a business demands time, effort, money, and resources — all of which could ultimately pull you away from your passion of financial investments. And the truth of the matter is you end up working on your business – marketing, operations, compliance, network administration – instead of in your business.

Sacrificing Your Passion For Business

The skill set required of a financial advisor is much different than what a business owner needs to grow and succeed — one of the major pitfalls that prospective small business owners often overlook.
It’s likely you’ve pursued a career in financial investment planning because you’re passionate about investment opportunities and helping others grow their portfolios in terms of diversity and returns. But frankly, these passions end up on the back burner once you decide to start your own small business because you end up elbows deep in operations.

Many businesses get bogged down in the paperwork, licenses, and other administrative tasks that are necessary yet cumbersome. But these are just the internal challenges. Consider all of the external concerns: branding, marketing, hiring, and other hurdles you might not have considered. For instance, the aforementioned Fundera survey found that the biggest challenges to small businesses include customer spending habits, the cost of health insurance, and an unstable economic market. And the list of housekeeping items keeps on growing.

As a business owner, you’ll also need to establish a culture. You need to consider the values, mission statement, branding, messaging, and other factors that will drive your business. Oftentimes, creating a culture is an afterthought, and many businesses think it will come to fruition as a company “comes into its own.” However, establishing culture can help you win and keep clients, because clients want to do business with a company that mirrors their values.

So with all of these business-crucial tasks on your plate, where does that leave you time to be a financial advisor?

Use Emotional Intelligence to Determine the Path Forward

Before jumping the gun and going headfirst into starting your own business, it helps to practice emotional intelligence. Emotional intelligence works two-fold: you acknowledge and control your own emotions and motivators, and subsequently understand the challenges and goals of your clients.

Using emotional intelligence can help you determine whether you are starting your business for the  right reasons — i.e., are you creating this business because you are a driven business owner, or because you are frustrated with your current role as an independent or firm employee?

If you realize  that you’re motivated by frustration, consider the alternative approach of finding and joining a firm that stands behind the same principles that you believe in. As an independent advisor, pairing up with a firm based on culture helps ensure that you are with a firm that can support you as both an individual and a professional — both of which are important for growth.

Beyond a cultural fit, a firm offers the advantage of  delivering the business operations, tools, and training  for you to work efficiently as a financial advisor (and not a business owner). Training is a time-consuming process; and as a business owner, you’ll likely have less time to service your clients and end up spending more time training fellow advisors. By working with a firm, you free up time that would otherwise be spent buried in business operations.

So, when debating between creating your own business or partnering with a firm, it’s important to ask yourself what sparked this consideration. Is it out of frustration?
Are you seeking more professional growth? Are you actively seeking more clients? Using emotional intelligence to dig into these introspective questions can help you answer your “why” and discover the best avenue for your professional and personal growth.