We explore the often-overlooked costs of running a regulated advice business – from compliance and technology to specialist support and the time required to manage an advice practice.
Most advisors are aware of the obvious costs of running a financial services provider (FSP) practice. Licensing fees, office expenses, professional indemnity insurance and staff salaries are usually factored into a business plan.
It is the less obvious costs that can come as a surprise.
Whether it is compliance support, technology infrastructure, specialist expertise or the time required to manage a regulated business, these costs can add up quickly and are often underestimated during the planning phase.
Before launching an FSP, it is worth looking beyond the initial budget to understand the financial, operational and time costs that come with running a regulated business.
The ongoing cost of compliance
Many advisors focus on the cost of obtaining an FSP licence, but compliance does not end once the licence has been granted.
Staying compliant requires ongoing attention. As regulation evolves, so must an FSP’s policies, procedures and business practices. COFI, for example, is expected to bring significant regulatory change, and understanding what will be different and preparing accordingly will require both time and resources.
Whether an FSP outsources specialist compliance support or handles it in-house, there is still a cost – either the direct cost of external expertise or the time required to manage compliance internally.
Technology and cybersecurity requirements
The technology costs of running an FSP extend well beyond basic office equipment. Most practices require client relationship management (CRM) systems, document management solutions, secure data storage and communication tools. Software licences, upgrades, maintenance and technical support can become significant ongoing expenses that are not always fully considered at the outset.
Cybersecurity is another cost that is becoming increasingly important – and cyber threats aren’t limited to larger firms. Smaller businesses are also being targeted by cybercriminals, making appropriate safeguards essential. Protecting client information, securing devices, backing up data and ensuring business continuity all need to form part of running a modern advice practice.
Access to specialist expertise
Running an FSP requires more than advice expertise.
Compliance is one part of the equation, but advisors may also need access to other specialist skills, for example accountants, IT providers, data protection specialists or administrative support. Some functions can be outsourced, while others may eventually need to be brought into the business.
The operational burden of running a business
One of the biggest adjustments for many advisors is realising that running an FSP also means running a business.
Regardless of their size, all practices require processes, record-keeping systems, service provider relationships and risk management measures. Client records need to be maintained, operational processes need to be monitored and regulatory obligations need to be met.
While these responsibilities may not always appear as obvious line items on a budget, they can result in additional systems, support services and administrative resources that increase the overall cost of operating the practice.
The cost of time
Perhaps the most underestimated cost of all is time.
Every hour spent on compliance activities, administration, technology issues, service provider management or operational decisions is an hour that cannot be spent meeting clients, building relationships or developing the business.
This opportunity cost can be difficult to quantify, but over time it can affect an advisor’s capacity to serve clients, generate revenue and grow the practice.
Many advisors may find that running their own practice gradually takes them further away from the work they most want to focus on: advising clients, strengthening relationships and building a successful practice.
A different way to run a practice
Establishing your own FSP is one way to run an advice business, but it is not the only option.
Masthead Financial Planning (MFP) offers an alternative for advisors who want greater freedom to build their own advice practice without taking on the responsibilities associated with obtaining and maintaining their own FSP licence.
Advisors who partner with MFP operate under an established licence while retaining ownership of their client relationships, choosing the product providers they work with and building long-term value within their businesses.
MFP provides the regulatory and operational support that allows advisors to focus more of their time on serving clients and growing their practices.
Understanding the full picture
The true cost of running an FSP extends beyond licensing fees and day-to-day expenses. It also includes the compliance obligations, technology requirements, specialist expertise, operational oversight and time needed to keep the business running effectively.
Understanding these costs upfront can help advisors make more informed decisions about how they want to structure their businesses. For some, running their own licensed FSP will be the right choice. For others, alternative models, such as MFP, may provide a more practical way to achieve their business and long-term career goals while continuing to focus on delivering advice to clients.