Building a
financial services business isn’t an easy — or cheap — endeavor. But the opportunity may be right if you have enough capital and a strong business plan.
Starting a business in this industry generally requires both the know-how to build and run a business and significant industry training and education. The industry is heavily regulated, so you’ll need to stay up-to-date on the compliance, regulatory, certification and licensing rules affecting whatever type of financial business you start.
That said, a well-run financial services business can generate a lot of revenue. It’s worth pursuing if you have a passion for it. Here are five financial services businesses worth considering:
A four-year college degree is generally considered a must to become a financial advisor. Plus, you’ll need to pass an exam to become a registered financial advisor with your state securities agency (if you’re managing investments of less than $100 million) or the U.S. Securities and Exchange Commission (if you’re managing more than $110 million). There’s also credentialing from the
Financial Industry Regulatory Authority. You can enhance your credentials by doing coursework and taking an exam that allows you to become a Certified Financial Planner.
Startup needs: Four-year college degree; becoming a registered financial adviser; strong sales abilities
You need a lot of money to start a bank — or you need investors willing to provide millions of dollars in capital. However, it can be a sound way to get more returns out of the fortune you have already amassed in another field, such as real estate development. It can also cement your reputation as a leader in your local business community. Just know that the application process for a de novo bank can be arduous.
Whether you’re chartering at the state or national level, a strong grasp of financials is important. You should also focus the bank’s lending on a niche that you know. Stick to geographies where you’ve already done business. If your background is development, lend to other developers and construction companies. If you’ve created a string of successful small businesses, focus on small-business lending.
Startup needs: A huge amount of capital; financial services know-how; expertise in your lending niche
It can be highly rewarding to run a credit union, which is a nonprofit cooperatively owned by its customers, providing needed financial services to its members. When opening a credit union, you need to be able to demonstrate that there’s already a large community of people willing to sign up and provide capital through savings accounts. Perhaps you know of large employers or professional associations interested in partnering with a credit union to provide an extra benefit to their employees or members. Perhaps there’s a strong desire in your neighborhood or town for a credit union. Most charters issued by the
National Credit Union Administration are for basic service credit unions, which offer savings accounts and small consumer loans. You don’t need a ton of financial services experience to run a basic credit union and you can learn more as you go. Historic data suggests that credit unions require at least
$500,000 in start-up capital to be economically viable.
Startup needs: A prospective membership base with a strong desire for a credit union; basic financial services knowledge, at a minimum
Insurance companies look for entrepreneurial spirit in their agents. You may not need a college degree, but you’ll likely need to take a state licensing course and stay informed on the latest regulations and trends in the insurance industry. You’ll also need to understand your customers’ needs and keep track of their life events — whether the birth of a child, buying a new home or starting a new business. You could also be a broker who sells insurance for multiple insurers — helping clients find the insurer and coverage that best fits their needs. Keep in mind that there’s more competition and disruption than ever — with more direct-to-consumer insurers luring in customers with low rates. So, it’s important to consider how you’ll compete and add value to your customer relationships, whether that’s by providing more personalized service or using technology to enhance your customer relationships. Consider working for another insurance agency or broker before trying to strike out on your own.
Startup needs: State license; experience in the insurance business
As with starting a bank, you generally need millions of dollars to start an insurance carrier, as well as a great deal of insurance industry experience — including underwriting and processing claims. Today, many carriers use technology such as AI to work more efficiently and accurately. You’ll also need to pass state regulators. Still, starting your own insurance company might be the way to go if you think there’s a particular insurance need that’s not well-served.
Startup needs: Capital to cover potential losses; insurance industry experience; passing state regulatory requirements
While a financial services company can be highly lucrative, there’s also a lot at stake if you don’t succeed, so proceed with caution. It’s best to start this type of business only if you’re already an expert in the industry and know what you’re getting into.
