How to Start a Money Management Firm

by Victoria Duff; Updated September 26, 2017
financial symbols coming from hand

A money management firm can take different forms. Daily money management firms provide bookkeeping, accounting, bill paying and cash management services to individuals and businesses. Some money management firms provide both daily money management and investment management, and some primarily focus on managing investments for their clients. The first step in opening your own money management firm is to comply with any state and federal regulations.

Daily Money Management Firms

Daily money managers can become certified by the American Association of Daily Money Managers, but certification is optional. Certification as a daily money manager requires passing an exam given by the AADMM, which also offers courses to prepare for the exam. Registration to take the exam costs $300 for members and $450 for non-members as of July 2014.

Registration and Licensing

If you intend to make any kind of investments on behalf of your clients and your assets under management total less than $25 million, register with your state's securities authority. Larger AOMs require registration with the SEC. Register on the FINRA website to take the Uniform Investment Adviser Law Examination, known as the Series 65 examination, required by most states. Your state might waive this Series 65 examination, however, if you hold another financial certification. The final step in legally qualifying to be a money manager is to file Form ADV, Parts 1 & 2, including Form U4, via the Investment Adviser Registration Depository system. Don't skip the licensing, because penalties can be severe.

Setting Up Shop

Once you have taken care of all the legal requirements to be a money manager, opening your money management firm is like any other business. Check with your local government regarding business licenses and zoning laws that will affect where you can locate your business. Create a legal entity such as a C-corporation or LLC, and get liability, errors and omissions and other insurance. Charles Schwab, which supplies support services for money management firms, estimates the cost to a stockbroker transitioning to independent money management ranges from $15,000 to $75,000 depending on the size of assets under management. Using the services of a large broker-dealer can provide your firm with record keeping, reporting, custodial, legal and even marketing services, or you can set up those necessities yourself.

Your Client Base

Independent money management firms typically are established by stockbrokers, accountants, bankers, insurance agents and other financial service industry professionals. They usually already have a book of clients. Other entrants into the field tend to be private investors who attract a group of people who ask to have the investor manage their money as well. Before you leap into your own firm, consider that your operating expenses might range from 30 percent to 50 percent of your client fees, which can be a flat annual fee or a percentage of money under management. Either way, your profit growth depends on increasing the money you have under management.

About the Author

Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.

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