FIRST YEAR BUDGET PROJECTION

A PRACTICAL RESOURCE FOR THOSE CONSIDERING LAUNCHING A

FINANCIAL PLANNING FIRM OF THEIR OWN

How much does it REALLY cost to start an RIA?This may be the single question we hear most often at XY Planning Network. Clearly, it’s a key consideration for anyone preparing to become an entrepreneur. Despite all of the practice we’ve had with this question, the answer isn’t an easy one.

There is an endless number of variables. Building a business is not unlike building a house. You can erect a rustic shack with plans to modernize and add on over time. Or, you can build a luxury mansion with floor-to-ceiling marble. Your comfort level and budget will likely be somewhere in between. It really comes down to deciding what kind of business you want to build.

In this guide, we’ll review some basic expenses you should anticipate when launching a firm. We’ll present three case studies highlighting the first-year budgets of XY Planning Network members who invested vastly different amounts into launching their firms, ranging from $12,000 to $55,000. Finally, we’ll provide templates for you to start mapping your own expenses in anticipation of building your firm.

All of us at XY Planning Network wish you the best of luck on your new venture. We’re here to help.

BUSINESS SET-UP

In this category, there are a handful of fees to anticipate. Expect to spend $100 on the fee for business formation (LLC filing fee) and $250 for your RIA Registration Fee. Business liability insurance will likely set you back $400 annually.

You will also need Professional Liability (E&O) Insurance. This typically comes at a price tag of about $2,000 upfront. Through special arrangement, XYPN members are able to pay for their E&O insurance monthly in installments of $93.

Initial registration and compliance assistance are pain points for many new firm owners. Compliance regulations can be confusing to navigate and no one wants to make a mistake in this area. Expect to spend about $2,800 upfront for outside help, plus $210 for ongoing support. Note: XY Planning Network is able to offer initial registration for just $1,500 to members through our in-house compliance department.

Depending on your state, you may be required to maintain a minimum net worth. Although the required amounts vary by location, we commonly see a range of $10,000-$15,000, based on services offered by your firm.

“I had to put $12,000 in the bank in the great state of California. You can’t start a firm for under $10K in California!”

-Scott Frank, Stone Steps Financial

MARKETING

Marketing is an area of your budget that can vary greatly. There is no shortage of ways to spend marketing dollars and expenses can add up quickly. To defray costs for members, XY Planning Network provides members with support to promote their firms. Benefits include, but are not limited to:

• A marketing coach with industry-specific expertise• Opportunity to syndicate your blogs for widespread consumer

exposure• Find An Advisor Profile (CFPs only) for lead generation• National media requests for credibility, brand-building & SEO

benefits

For those going it alone, we recommend allocating at least $1000 for marketing.

When launching a new firm, one of the greatest marketing expenses, and most important, will be the cost of website design. Typically, a basic website can be had for about $3,000. Bids for website design can vary dramatically, so it may be worthwhile to shop around. Securing your domain name and web hosting is a nominal fee through sites like GoDaddy.com. Basic packages start at $36.

Q: What was the single expense most critical to your success?

A: There were actually two. The first was paying a compliance expert to help me register with the state and draft ADV and client agreements. This was important because the entire process was done in under three weeks (not typical). The second was my website. I spent $1,200 to create something that looked vastly different than the typical advisor website, and that helped get me noticed as bringing something new to the table that first year.

-Eric Roberge, Beyond Your Hammock

OFFICE EQUIPMENT & EXPENSES

One of the benefits to launching your own firm is the possibility of keeping office expenses relatively low. Working from home is free and comes with tax benefits. There is no need to budget for an office lease.

The cost of office supplies is minimal in the digital age; we’ve included just $10 per month in our sample budget for this expense. You likely already have internet access at home, but this is a business expense nonetheless. On average, internet plans cost about $40 per month.

Our sample budget includes a computer for $500 and a printer/scanner for $50. These costs are averages; a thrifty shopper can spend significantly less. Of course, if you already have this equipment, you can allocate these funds elsewhere in your budget.

Q: What was the single expense most critical to your success?

A: Committing to a year of XYPN. If it wasn’t for the community and resources I don’t think that I would have made it.

-Scott Frank, Stone Steps Financial

SOFTWARE

Software can easily become one of your greatest start-up expenses. The tech team at XY Planning has carefully assembled a robust tech stack to provide planners with everything they need to run a successful firm. If purchasing these tools a la carte, expect to spend about $100/month on your compliance management system. Similarly, you should budget $75-$100 per month for financial planning software if going it alone.

Several more tools are provided free to XYPN members as a member benefit, such as social media archiving which typically costs $39/month. You’ll also get your client relationship management software (CRM) which would otherwise cost $35/month. XYPN can also save you $30/month for website archiving. Additionally, you can save half on data gathering software as an XYPN member.

XYPN members can skip the monthly fee for payment processor AdvicePay and pay reduced rates for credit card and ACH transactions on the platform. Non-members can expect to pay $50/month for AdvicePay. Transaction fees also apply.

Finally, plan for about $13/month for basic accounting software.

Interested in joining our member community? Welcome. I’m here to answer your questions.

- Philip Naro, Network Navigator

Email Philip Schedule a Call with Philip

ORGANIZATIONAL FEES

There are a number of organizational fees you will want to budget for in your first year. If you choose to join XY Planning Network, you’ll pay $460/month. That will save you on the upfront charges you’ll pay for your NAPFA membership, which total $900. If you’re a CFP®, be sure to add $355 to your budget for your CFP® Certification Renewal.

You may notice in the following case studies that some members didn’t pay their XYPN membership dues for all 12 months. Members receive a 1-month credit for each new member they refer to the network to reward them for sharing the network. The case studies reflect membership fees at the time of reporting (membership fees increase an average of 3% each year).

For a look at all of our cost-saving benefits, get our Member Benefits Directory.

Q: What was the single expense most critical to your success? A: Honestly, it was becoming a member of XYPN. Knowing that I wasn’t alone in the process and struggle of launching was priceless. The knowledge base inherent in the team and other members is invaluable. It would have taken a lot of time to personally vet different technology vendors or figure out some of the process on my own. Add on top of that the discounts available for key components of the business and access to platforms such as TD Ameritrade Institutional, and it’s tough to beat. The freedom within the network to plug-in and plug-out of components is truly unique.

-Jennifer Harper, Bridge Financial Planning

LIVING EXPENSES

Depending on your situation, you probably want to consider basic living expenses when calculating your start-up costs. Many new firm owners rely on outside income, personal savings, or their spouse’s salary to get by in their first year. We focus on business expenses in our sample template, but it may be helpful to get the big picture of how much cash you’ll need to have on hand as you build your firm. It’s a good exercise to consider your everyday expenses when starting a new entrepreneurial venture.

Of particular interest are expenses covered by your current employer, such as health care, cell phone, or company car. If you are losing benefits by leaving a job, you will want to consider your new out-of-pocket expenses.

Although personal debt is not necessarily a deal-breaker for entrepreneurship, you may increase your comfort level in your first year by taking some time to pay down debt and increase your discretionary funds.

Other considerations include housing and utility costs, childcare, food, and entertainment, for starters. Don’t forget those recurring monthly expenses that add up, such as a health club membership, hair and beauty appointments, and housekeeping or lawn care. For some, those trips to the store to stock up on essentials like shampoo and toilet paper inevitably end up costing hundreds of dollars each month. When considering a major life change, be honest with yourself about how much your lifestyle truly costs.

And finally, practice what you preach and budget for your emergency fund and savings.

The business expenses themselves weren’t a surprise, but in addition to building a business budget I would have been more explicit with my own personal budget needs. I’m in a very supportive relationship and we are fortunate to have had the flexibility to allow for a financial step-down to start a company, but personally it was tough to feel financially dependent for the first time in 20 years. In addition to your business budget, be aware of what your personal draw looks like until you’ve got revenue.

-Jennifer Harper, Bridge Financial Planning

Case Study:Beyond Your Hammock

Eric Roberge, CFP® is the founder of Beyond Your Hammock, where he helps people in their 30s and 40s turn their income into financial freedom. In 2016, InvestmentNews named Eric to their exclusive 40 Under 40 list, Wealth Management Magazine called him one of the top 10 CFPs under 36, and Financial Advisor Magazine said he was one of the top 10 Young Advisors to Watch. He has shared his innovative financial planning and money management techniques in the Wall Street Journal, CNBC, and USA Today, and writes articles for Forbes, The Huffington Post, and MONEY Magazine.

After looking at my first full year budget (2014), I honestly don’t think I could do much to improve my budget. That thing was as tight as it could have been. It had to be... I had very little revenues and not much in savings. I only spent $12k, so I can’t say I did much overspending! I can’t say I underspent either. Any more spending would have put me in (more) debt.

What expenses did I have that I didn’t anticipate? Travel expenses to attend various conferences, including the FPA NexGen Gathering and FinCon. I didn’t really have the money, but I squeezed out the least expensive trips I could. Connecting with the industry to network and gain knowledge may not be an immediate return, but it definitely helps down the road.

The financial side of starting a business from scratch is a major stressor if you don’t have the funds. Securing a side job will help reduce that stress, but it may not go away. That’s why you really have to focus on the mental and emotional impact of this journey. I’m living proof that it’s not impossible, but the last thing you want to do is ignore what your mind and body are telling you. Focus on feeding your mind, eat healthy and get enough sleep. Your performance will count on it. Also, build communication and relationship skills and learn from others.

Get to know your existing cash flow like the back of your hand. Then run various revenue and business expense scenarios to get a feel for how things could go. Have a plan for the worst case and then go out and create the best case.

-Eric Roberge

UPFRONT EXPENSES MONTHLY EXPENSESBUSINESS SETUPCapital Purchase $59Surety Bond $150Compliance Support $300  Category Total $509MARKETINGWebsite $1272Misc. $136 annual totalGoogle Apps $64 annual totalGolf $191 annual totalMeals $181 annual totalDomain Name and Web Hosting $122Audible (3 months) $15 x3Direct Mail $82 annual totalMailChimp (12 months)  $10 x 12Business Gifts/Sponsorship $215 annual totalCategory Total $1,394 $1,034 Annual TotalOFFICE EQUIPMENT/EXPENSESOffice Supplies $21 annual totalParking, varies from $4-$24 monthly $180 annual totalCommuting, varies from $5-$20 monthly $35 annual totalCleaning $12 annual totalPostage $16 annual total Books/Education $267 annual total Category Total $531 Annual TotalSOFTWAREMoneyGuidePro (8 months) $66 (first month) $90 x 7Less Annoying CRM (12 months) $10 x 12PreciseFP $203PaySimple Transaction Fees $69 annual totalFP Hackers $149Category Total $418 $819 Annual TotalORGANIZATIONAL FEESXYPN Monthly Fee, legacy rate, 6 months $297 x 6FinCon $578FPA, 10 months $35 x 10FINRA $1190 annual totalCFP® Certification Renewal $325NextGen $256  Evol Business Institute $177BNI $640Networking & Biz Dev $713 annual totalTravel $1167 annual totalCategory Total $1,976 $5,202 Annual Total

UPFRONT TOTAL MONTHLY TOTAL$4297 $7,586

12-Month Total $11,883

LISTEN

HOW ERIC SPENT IN HIS FIRST YEAR

Episode 6: The Career of Eric Roberge: How He Built a Business to Support the

Life of His Dreams

Case Study:Bridge Financial PlanningJennifer Harper of Bridge Financial Planning began working in the financial services industry in 2000, earned an MBA from the University of Tennessee at Chattanooga in 2001, and became a CFP® in 2006.  In 2005, she began developing a financial education non-profit organization, Common Cents Financial Literacy, Inc. to help guide young people toward an independent and responsible financial future. Additionally, she is an adjunct Finance instructor at the University of Tennessee at Chattanooga.

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Looking back, it’s clear that the saying, ‘you don’t know what you don’t know’ is SO true. I tried to stay as streamlined as possible, while putting more money toward scalability, marketing, and continuing education. Those may have all been areas that I could have saved money on, but I would have felt like I was sacrificing some of my vision.

Having an online presence was something I initially underestimated. Once I started looking at what was possible and how to build and leverage a mission, brand, and image; I got it. Some people are comfortable building their own (web)site, but I’m glad I outsourced it. Initially, I went with a low cost provider to create a logo, business card, and letterhead. The moment my website developer saw it, he said it was terrible and had to go. I was defensive at first, but the more I listened to why it was so terrible and how it didn’t really coordinate with my message, it was clear he was right. He came up with a much better logo design and now I feel the branding and images are consistent from a design standpoint that I would have never understood before. Lesson learned: stick with what you know. I don’t know design. Continuing education is another category I ‘could’ have spent less on, but that mentality is opposite of my mission and vision, and I feel strongly that it would be penny wise and pound foolish. I have continued to gain knowledge and valuable connections through attending in-person continuing education conferences. My first conference fee for NAPFA was generously donated by a NAPFA colleague, and it solidified the heart and value of that network to me.  Build a buffer into your plan. Nothing ever goes exactly as planned. There will always be something that comes up that wasn’t anticipated. Yes, I know you’re a financial planner, but you know the saying, “the cobbler’s kids have no shoes.”

Once you’ve decided to launch, just launch. Get going. Don’t overthink things too much. Nothing’s set in stone (other than to be a fee-only fiduciary!), so there’s opportunity to refine your business along the way… Don’t worry about everything day one.

   -Jennifer Harper

UPFRONT EXPENSES MONTHLY EXPENSESBUSINESS SETUP

RIA Registration Fee $260

Business Liability Insurance, partial year $500

Net Worth Bond, Required in Tennessee $15,000  

Category Total $15,760MARKETING

Website Design $2500

Domain Name and Web Hosting, 12 months $22 x 12

Marketing Misc. $1700

Meals/Entertainment $197  

Misc. $177  

Category Total $4,574 $264 annual totalOFFICE EQUIPMENT/EXPENSES

Office Supplies $75 x 12

Internet Access $100 x12

Computer $700

Printer/Scanner $540

Office Lease, partial year $270  

Books/Education $146  

Category Total $1,656 $1,020 annual totalSOFTWARE

Accounting $341

Financial Planning Software (Advizr or RightCapital) $3600

Document Management System $99

Scheduling Software $190  

Encryption Service/Backup Service $96  

Boomerang – Productivity/workflow $150

Category Total $4,476ORGANIZATIONAL FEES

XY Planning Network Monthly Fee, 10 months $397 x 10

Website Link For NAPFA's Advisor Profile $221

CFP® Certification Renewal $325

Conferences: Travel, etc. $1852  

Category Total $2,398 $3,970 annual total

UPFRONT TOTAL MONTHLY TOTAL

$28,864 $5,254

12-Month Total $34,118

HOW JENNIFER SPENT IN HER FIRST YEAR

LISTEN

Episode 54: Developing a Financial Literacy Program

with Jennifer Harper

Case Study:Stone Steps Financial

Scott R. Frank, CFP®, CFA is the founder of Stone Steps Financial, a firm created to help young professionals and families understand their financial lives and position themselves to reach their fullest potential. He is highly trained in the fields of financial planning and investment management having earned the Certified Financial Planner (CFP) designation as well as the Chartered Financial Analyst (CFA) charter in addition to years of experience at nationally recognized firms. He lives in a little beach town, Cardiff by the Sea, just north of San Diego. When he’s not geeking out on financial news or white papers, you’ll find him surfing with friends (Stone Steps is named for a surf break just a few minutes north of his house), running along the Pacific Coast Highway, or spending time with his family. 

I started my firm with best-in-class software and hardware. I didn’t want to upgrade down the road. I paid for systems that have capacity compared to my needs so I don’t have to switch while I am growing my firm. I may have waited for performance reporting. Orion was a huge expense for a start-up. Coming from an established RIA, I thought everyone needed performance reporting.

What expenses did I have that I didn’t anticipate? Nothing, but that’s because I had a community of advisors who had already done it.  Learn how to sell. Sales typically has a negative connotation in the fee-only financial planning space. Guess what! If you can’t sell your services you can’t have a successful business and most importantly, you cannot help those you wish to serve.  Be authentic. Don’t be someone you are not. Your success will be determined by your perseverance, determination, and the financial resources you have to keep the lights on while you scale your business. I would suggest you have at least 2 years of cash flow on the sideline to support your life while you start the business. I am blessed with a supportive spouse who worked to keep the family fed and clothed while I grew Stone Steps. If it wasn’t for her, Stone Steps wouldn’t exist. If you are married, make sure your spouse is on board and be realistic with your growth assumptions.

-Scott Frank 

UPFRONT EXPENSES MONTHLY EXPENSESBUSINESS SETUPBusiness Formation $444

RIA Registration Fee $200

Initial Registration and Compliance Assistance $1000*

Professional Liability (E&O) Insurance $660

Business Liability Insurance $500Net Worth Bond Requirement, California $12,000  Tax for LLC in California $800  Category Total $15,604MARKETINGWebsite Design $4800

Domain Name and Web Hosting $110

Marketing Misc. $960

Category Total $5,870OFFICE EQUIPMENT/EXPENSESOffice Supplies $500

Computer $1480

Printer/Scanner $300Office Lease $550 x 12Travel $1600  Meal & Entertainment $1600  Category Total $5,480 $6,600 annual totalSOFTWARESchedule Once $190

Windows 365, Last Pass, MileIQ, Spanning $182Financial Planning Software eMoney $324 x 12Orion $833.33 x 12Riskalyze $89 x 12Google Apps, Mailchimp, Private Wifi $31 x 12

Category Total $372 $15,327.96 annual total

ORGANIZATIONAL FEESXY Planning Network Monthly Fee $397 x 1FPA Dues $399

CFA Dues $375

Website Link For NAPFA's Advisor Profile $210

CFP® Certification Renewal $325Category Total $1,309 $397

UPFRONT TOTAL MONTHLY TOTAL$28,995 $22,324.96

12-Month Total $51,319.96

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LISTEN

HOW SCOTT SPENT IN HIS FIRST YEAR

Episode 49: What it Takes to Start a Firm From Scratch

with Scott Frank

*Legacy pricing

Sample Templates

Access our templates and customize a budget to meet your individual needs.

Click Here forFirst-Year Budget Templates

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