How Do Entrepreneurs Start New Investment Management Firms?

Investment management firms can be started by entrepreneurs as a way to manage assets for their clients. Starting such a venture requires industry knowledge and capital. Capital is required to meet certain expenses associated with an investment management practice. Before deciding to begin a management firm, an entrepreneur should research and consult with investment management professionals to determine the feasibility and viability of such a business venture.

Business Plan

To begin, a business plan should be written and used as a blueprint to approach the planning process in a thoughtful and disciplined way. The business plan contains information regarding the business structure and form, management, financial, legal and regulatory aspects of the investment management firm. There are professional entities and consultants that specialize with in business plan writing to help the entrepreneur effectively communicate their prospectus.

Licensing Requirements

After completing the business plan, an entrepreneur must determine the level of licensing required by the jurisdiction in which they will conduct their practice. This determination should include a consideration of licensing exams, fees, bonding and professional liability needed for the form. It may also help to identify the amount of net capital that may be required for the business as may be required by federal or state regulators. Net capital requirements ensure regulators that the firm is solvent and able to meet it minimum obligations to its clients. The amount of net income varies from state to state and may be as low as $5,000 and as high as $100,000 or more.

Depending on the type of clients that the firm will seek, the entrepreneur may need to obtain various FINRA securities or industry sponsored credentials including CFA, CIMA and registered investment advisor.

Capital Requirements

The initial capital needed to finance the firm will come from a variety of resources, both personal and externally. Bank loans and other lender funds, angel investors, venture capitalists and other financiers are a few of the resources that may need to be tapped in order to obtain required capital. To operate properly the firm should have an adequate level of funding to meet necessary overhead and regulatory expenses for at least 3 years or more. This will help the entrepreneur survive the lean years and focus on client acquisition and service.

Marketing and Promotion

Marketing and promotion are key elements of the investment management firm. The things that differentiate the firm from other investment management firms need to be highlighted and featured in order to get the word out and promote the business. The investment management business is built on reputation and persona relationships but must rely on the ability of the firm to let clients know that they exist. Investing the money and time necessary to develop a concise and targeted marketing plan will help assure investors of the business’s viability as well as guide the entrepreneur in the decisions necessary to begin marketing the firm.

Starting an investment management firm involves much of the same processes as any other business types. Special attention needs to be paid on the requirements necessary to allow the business to operate and avoid any under disruption or delay.

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