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CAclubindia News : Business plan for a Budding Investment Advisor - Sh...

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Business plan for a Budding Investment Advisor Shri.Boodhimaan


I had some deep thoughts in 2006 (my year of passing CFP) about my future as a Fee Based Financial
Planner in this countr. I was very excited when I read news articles and FPJ (the official magazine on
FPSB-India) that we are a new breed of professionals having a bright future .I started out as a Fee +
Commission based financial planner .The first year was tough, I thought that business is a long term game so
patiently I tried with more vigour for next 3 years .I started to earn but the earnings were not enough to
convince a girls father to marry her daughter to me.This made me to do some research about this and that
research earned me a Ph.D from Mumbai University. However, I am not here to discuss my thesis. But my
research made me to diversify my practice into other areas like Capital Syndication and Management
Advisory due to which I was able to convince my father-in-law to get his daughter married to me and now I
am also a proud father of two lovely kids.
I still get many calls from some Budding Investment Advisors about my thoughts on the future of the
profession. Since I am person who thinks more about possible things and not BIG things I do share my
thoughts with them. This made me to write this article for a Budding Investment Advisor - Shri.Boodhimaan
about the five year road map with all the new SEBI regulations.
Being a person of finance, let me start with projected cash flow for a new Investment Advisor ( as per SEBI (
Investment Advisers ) Regulation 2013).
Table No 1 - Cash flows for an Investment Advisor

A
B
C

Year
1
Success Rate of the Advisor 50%
Number of Client Meets
72
Old Clients ( retention rate of
0
D
80%)
E=B*C New Clients
36
F = D+E Number of clients (NET)
36
G
Average fees
7500
H = F*G Total Revenue
270000

2
50%
72

3
60%
80

4
70%
86

5
80%
100

29

52

80

112

36
65
7500
486000

48
100
8500
848640

60
140
10500
1468656

80
192
12500
2398720

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CAclubindia News : Business plan for a Budding Investment Advisor - Sh...

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I
Less - Service Tax @ 15%
0
J = H-I Net Revenue
270000
K
Less - Business Expenses
L
- Rent
0
M
- Travel and Communication 60000
N
- Software fees
10000
O
- Staff
0
P
- Marketing
30000
Q
- Compliance Fees
0
R
- Printing & Stationary
12600
S
- Other Office expenses
0
T
112600
Total Business Expenses
U = J - T EBT
157400
Less Tax (assuming individual
0
V
tax slabs )
W = U-VEAT
157400

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0
0
220298 359808
486000 848640 1248358 2038912
0
69000
10000
0
33000
0
23814
0
135814
350186

180000
79350
12000
78000
36300
0
52416
24000
462066
386574

198000
91253
14400
85800
39930
8000
73433
26400
537215
711142

217800
104940
17280
216000
43923
10000
100746
29040
739730
1299182

31114

169836

350186 386574 680028 1129346

I have made many assumptions for the above cash flow projections .Assuming that the new advisor starts with
a success ratio ( line B in the table no-1) of 50% in year ONE which moves to 80% in the year FIVE .He
needs to meet many prospective clients to convert them in clients who starts paying .My marketing and sales
friends, will understand and agree that one must have huge data base to be able to zero down on prospective
clients list.
Over here let me briefly touch upon the client profile ( we call all our clients as Shri.Doordrasthi ), as my
Management friends will agree that business starts from identifying a customer .So our ideal client has to be a
person who understands
1. that financial markets are getting more and more complex and uncertain
2. life span is getting longer and there is lack of social security
3. old family structures are going out etc etc
On the top of this , he values professional advice and is willing to pay for it .Now when I assume that the
average yearly fees charged by Shri.Boodhimaan is Rs.7500 in the year one ,it makes us to infer that its only
a person with atleast Rs.5,00,000 of investible surplus p.a will be willing to pay such a fee. This is turn means
he should be having a after tax income of atleast Rs.12,00,000 p.a. So in year one I assume that
Shri.Boodhimaan has to meet some 72 such Doordrasthis to get 36 clients in the first year .Now all these
Doordrasthis are also tech savvy and also good readers .They have many of those free money management
apps on their hand sets and read many personal finance magazines and websites. So it takes really good
selling skills to convince them to hire a financial planner whom they have to pay , but alas ! most of us
(financial planners) are not taught how to sell .
Shri.Boodhimaan will work for first 3 years from home and for first 2 years as a one man army i.e without
any staff .This will lead to his EAT being Rs.1,52,00 in year one to Rs.3,94,324 in the year three. Now the
business is set Shri.Boodhimaan is able to retain 80% of the old clients and his success rate to convert a
prospect into client has also gone up. So in the year three itself he has 100 clients and he is able to get about
192 clients in the year five . A remarkable growth of 40% CAGR.
However, comes the year three and he needs to take a office , which he gets at a rent of Rs.15000 p.m .I am
assuming that there is no need to decorate the office and the landlord has given him a fully furnished office
.He has established himself as a good advisor and hence he increases his fees from Rs.7500 in year one to

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Rs.12000 in the year five. A remarkable growth of 11% CAGR. But than comes year four when his gross
receipts cross Rs.10,00,000 and he is covered in the Service tax net .So he pays Rs.2,20,298 as ST in fourth
year and Rs.3,59,808 in the year five.
As the business grows so does the requirement of staff and hence the staff expenses grows from Rs.78000 in
the year three to Rs,2,16,000 in the year five .
Now Shri.Boodhimaan would be earning Rs.11,29,346 post tax in the year five with 192 Doordrasthis
paying him a yearly fee of Rs.12500 .He would be managing the business with max 2 employees who share
among them a monthly salary of Rs.18,000 .So let Shri.Boodhimaan take a call whether to be a FEE BASED
Investment Advisor or not as it all depends on the doodrasthi of Boodhimaan.
The author can also be reached at jeetrshah@gmail.com

Source : -

10-Jul-16 8:26 AM