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Discussion Starter #1
Hi everyone,

That's my first day here and I decided to put out my question that I searched for several days. There are so many so many Cxx licenses in this industry. I have a bunch of clients from other professional area, that's the reason I want to start up my own company to provide them industry information, to suggest etfs, to help them to open trader account on platform like Questrade. I am not planning to handle money deposit and such. Advice only, based on consultation fees or annual fees based on amount of money per client.

Any comments are welcome.
 

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First suggestion: Run away, don't walk from that idea.

To be a little more helpful, you need the Canadian Securities Course and then a Securities License. I think you might need an accreditation of some sort first. Professional Financial Planner, that type of thing. Can't remember. That is just to offer advice to clients. To run the firm, you will need a dealers license and a branch manager's accreditation. No one gets a dealer's license when they work out of their home. So you will need an office of some sort.

You absolutely have to have a compliance department and for them to do their job, some kind of computer system. If you want to see these accounts you then have to convince Questrade. They most likely will not like the idea but possibly trading authorizations might get them to reluctantly not get in your way.

Contrary to many people's opinion, providing financial services is actually a very expensive endeavour. It scales well, in that if you manage very large amounts of assets, not only does it start to become profitable, but can become very profitable. I would say that if your associates cannot provide more then $50,000,000 in investible assets, you will lose money. It will probably be higher then $100,000,000 before you will be making what you should. And at all times, after you make all those investments your clients can leave you anytime they want by signing one form, offered to them persistently by hundreds of other financial firms, way bigger then yours.

It won't stop there. Soon your clients will want this. Then they will want that. I am talking about competitive things that your small firm cannot afford to offer...but soon will have to in order to keep those assets. Or you have something no one else has. If this is simply you and it is your plan, again, good luck with that.
 

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First suggestion: Run away, don't walk from that idea.

To be a little more helpful, you need the Canadian Securities Course and then a Securities License. I think you might need an accreditation of some sort first. Professional Financial Planner, that type of thing. Can't remember. That is just to offer advice to clients. To run the firm, you will need a dealers license and a branch manager's accreditation. No one gets a dealer's license when they work out of their home. So you will need an office of some sort.

You absolutely have to have a compliance department and for them to do their job, some kind of computer system. If you want to see these accounts you then have to convince Questrade. They most likely will not like the idea but possibly trading authorizations might get them to reluctantly not get in your way.

Contrary to many people's opinion, providing financial services is actually a very expensive endeavour. It scales well, in that if you manage very large amounts of assets, not only does it start to become profitable, but can become very profitable. I would say that if your associates cannot provide more then $50,000,000 in investible assets, you will lose money. It will probably be higher then $100,000,000 before you will be making what you should. And at all times, after you make all those investments your clients can leave you anytime they want by signing one form, offered to them persistently by hundreds of other financial firms, way bigger then yours.

It won't stop there. Soon your clients will want this. Then they will want that. I am talking about competitive things that your small firm cannot afford to offer...but soon will have to in order to keep those assets. Or you have something no one else has. If this is simply you and it is your plan, again, good luck with that.
thank you, Eagle, for your very insightful information. It's so scary by the picture your painting.

Even I am not sure we are talking about the same thing. I don't need money deposit authorization, so my financial planning is based on consultations. Why I have this ideail is I used to suffer and awful service and expensive management fees from major 5 banks.

Recently I have learned that there is robo financial advisor can do well in EFTs long term investment within your risk bearing, and low cost. I believe there are many people like me need a hybrid of robo and human financial planning service. Am I wrong?

Again, thank you. You gave a lot info to digest and think through.
 

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Still not sure what exactly you are trying to do. Are you trying to refer these people to a robo advisor that currently exists or are you trying to be the robo advisor.

In the first case, just refer them and be done. No responsibility is being taken. In the latter, it is a lot more difficult. Trying it yourself you will soon realize why those very high fees are being charged. What will be annoying is losing money while your customers complain about your high fees. If you do lower the fees, you will lose more money. The idea you have has probably been thought of 100s of times. It is just very difficult to make work, hence why it does not seem to be abundantly available.

Bottom line when it comes to financial services. You need to be huge. You need huge pockets (lots of capital of your own to invest). Lastly you need huge amounts of assets under management.................oh and knowing how to manage money is useful but not completely critical. lol
 

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There are a lot of people out there who have hung out their shingles to be financial advisors of one form or another. It takes capital, liability insurance, business license, setting up a limited company perhaps, contract forms with all the boilerplate clauses, etc.

You'd likely be better off being an Associate perhaps of a small boutique firm.

Example Directory of Fee Only Planners
 

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and if you miss any of those steps, the SEC will come after you for fines and often jail time.
 

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Discussion Starter #7
That's so scary! A Half of me want to give up this idea right away, and the other half of me Still want to continue on... And the whole me is crazy about digging more information about this scary industry.

Thank you so very much Everyone post here. Thanks AltaRed, for your fee chart file, at least with this info I have an idea to make a break even balance sheet.

Mr. Eagle, based on your questions I think I am not 100% clear about my business model. How I will be profitable. There are two ways in my mind now:

1. Be a fee only financial planning consultant independently owned company (even just for myself). Walking down by this path, I will never sell any financial products. Therefore I will provide unbiased advice for my clients.

2. If I dream bigger, I will handle money from clients which is super super hard to get started. I am confident to attract a few M dollars to start, but no more in a short period. But I don't understand why you said understanding How to manage money is not important in this industry. Then what's really matters? I think managing money skills&exp is the most vital part of this industry. I confess I am not there. If I start this trail I will need an expert to work with. Also, the high management fee charged by banks, I believe only for their greedy needs because I used to read an article on moneysense that saying banks earn more than clients on managing clients money, much more. That's why robo advisor weigh in these days.

anyway, even I give up eventually, I will satisfy myself with enough scary information. 😄😄😄
 

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I think it would be wise to stick to 1 if you go down this route. Fee only planning. Not recommending products and for sure not discretionary management of client accounts.

Over the years, I have read from many 'portfolio management' types that talk about how much overhead and regulatory compliance items are associated with 2. It takes a lot of capital to get started and even longer to attract enough paying clients. May need $100M in AUM to break even.

FWIW, the first route is what many of us do anecdotally, informally not under contract, and as a 'free no compensation' favour to friends and family. The flashpoint and threshold is when one gets into a compensation model. Another flashpoint is having trading authority over friends and family accounts...except in a formal POA situation.

The fact remains that most of us are only providing opinions and recommendations to our friends and families. It is not the more formal application of "advice".
 

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Perhaps I should have stated that the ability to manage money is not the MOST important thing to have and is quite a few items down on the list of what will make you successful. If you already know all your future clients very well then personality and smoozing ability may not be as important but if you intend to acquire new clients, your ability to quickly get people to trust you is absolutely critical for your ability to succeed. Your ability to get people to like you would probably come next. These are all sales skills and personality traits that most people actually don't have. The ability to operate the business itself, as we have been discussing, with respect to licensing and capital, would come next. There is probably even a few more things that will be MORE important then your investing abilities.

I mean an index fund will out perform 60% of humans, using their abilities, and almost none of those people are even close to being called stupid. Very capable people trying to crack a very difficult nut. So if an index fund, that is readily available and very cheap can outperform most people, you can start to see why "investing ability" is not a very important item to have to run a financial services business. I know if you are being hired by one as a financial advisor, that is not the number one trait they are looking for.

Keep in mind that many people believe they are an above average investor, but most of them, as the statistics prove, are not. 70% of Fidelity mutual funds will underperform their benchmarks, but keep in mind that none of their funds are being managed by a high school drop out. These are some of the smartest people, with proven records, backed by one of the largest money managers in the world, and yet they struggle to beat the index each year. So if money management was the most important criteria for a successful financial services company, why is Fidelity so successful? Because it is not.
 
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