In the first part of our series, we considered how to apply for FCA authorisation to become a directly authorised firm (you can catch up on that article here).

    This next section is focused on the 'build' element of your business model and will again look at what to do, what to expect, and what to avoid.

    What to do 

    The first consideration is around your business structure, and whether you want to set yourself up as a sole trader, limited company or LLP. 

    This decision may well be driven by the nature of your set-up, and this is particularly the case if you are going directly authorised with at least one other person. For each structure, you should be aware of the advantages and disadvantages, the tax considerations and how the formation of the structure works.

    These elements will help you choose the structure that works best for you. Factoring in your eventual goal (that is, what your business will look like in five years' time, rather than right now) can help make the decision.

    The next step is to consider your client segmentation. We suggest firms follow this process:

    1. Identify your ideal client. We recommend basing this on demographics, rather than level of assets.
    2. Identify your 'almost ideal' clients. This is likely to throw up two or three additional categories, and will act to shore up your numbers of prospects.
    3. Consider the service level for each category. It's worth basing this on what they actually want and need – just ask them to find that out. 
    4. Work out the cost of delivering that service, add a profit margin, and then decide how that is charged (for example, fixed fee or converted back to percentage of assets).

    Then comes some of the less exciting stuff - you need to be thinking about your training and competency framework and how your ongoing business compliance will be monitored and maintained. While this isn't sexy, it is utterly essential. 

    You can then start building your marketing and proposition based on these categories (more of that in the next part of this series).

    What to expect

    To put it bluntly, don't expect anything to work exactly as you thought it would first time. Your clients might not be where you’re expecting them to be. They might react to receiving different marketing than they are used to. Your segmentation might have ended up too niche or too wide, resulting in enquiries that aren't suited to your area of expertise.

    This goes for compliance too. Your training and competency scheme will need to be amended as you get to grips with what performance measures are important for your firm, or how different advisers best respond to training.

    So expect everything to need tweaking. But it's advisable to get it all in place as soon as possible; it's much easier to refine a process later down the line, than have to build it from scratch when you’re then super busy (hopefully!) with everything else.

    What to avoid  

    Try to avoid falling into the classic trap of spending all your time on the fun stuff like client profiling or marketing.

    Firstly, it will almost certainly change as you get up and running and as you realise which types of client are a good fit for your firm.

    Secondly, while that stuff is important, in our regulatory world it is not as essential as having a robust compliance and training framework in place.

    Having that fully planned out and implemented right from day one will greatly reduce the risk in your new business (and who doesn’t want that?).

    When clients start queuing round the block, it will also enable you to focus on them, safe in the knowledge the important stuff is in place.

    For more information and support in going directly authorised, click here 

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