Investments in New Initiatives - Business Management for Financial Advisers

Most advisers are awash in opportunity. A good idea comes down the pike about once a week—new markets, new services, new people, and so on. Some people in this business probably waste more money on new initiatives than they make on managing their business right. The most common initiatives are special marketing efforts and hiring new people to open up a new market or to offer a new service.

For either one, you need to define your expectations of return. Think of it in these terms: When you help manage your clients’ performance expectations on their investments, you usually have to temper their enthusiasm with a conversation about the risk/return relationship.

In your business, you must ask the same question: What is a reasonable return on my investment for these new initiatives, and when should the returns be realized? The amount of the return will vary, but you should attempt to calculate how much business you would need to do to generate both a return on the investment and a reasonable return for the risk you’re taking.

Rules of thumb are always questionable, but it’s generally a good idea in a service business to establish a time horizon of eighteen to twenty-four months within which you’ll begin realizing a return. That horizon is relatively short, but the length is dictated by the nature of these investments, which are often geared to producing a return in a short time. So it’s best to keep your expectations in line with that hope.


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