In this post we will look at the process you will need to follow in order to build a professional money management business.
This will give you the correct expectations and direction which will increase your chances of reaching your goals.
We will be looking at the following points:
- What your expectations should be for moving from retail trader to professional trader
- How to build your business in stages
- The top mistakes you need to avoid
If you’re a retail trader then making the transition to professional is challenging. There are very few resources available to help you.
The rewards of such a career, however, can make all of the effort worthwhile. Managing other people’s money is the best way to leverage your skills to grow your own wealth.
Many retail traders remain stuck in the mind-set of trying to grow their own account exponentially. They feel that this is the best way to get rich.
The reality is that this is littered with issues and carries an almost 100% failure rate. This is mainly down to the incredible risk that must be taken in order to generate huge returns.
The safest and most stable way to become wealthy from trading is to actually manage other people’s money.
This allows you to keep the risk low while increasing the cash value of your returns. Making 20% on £10 million is far different to making 20% on £10,000.
The performance fees you can charge on these higher profits are the key to growing your own income quickly.
I will share some of my own experience to help you get started in building a sustainable money management business.
Having The correct Expectations
One of the biggest hurdles in the way of retail traders is that they have the wrong expectations.
They put all of the focus on their trading track record. They believe that if they have a good track record the money will come rolling in.
This is a false belief that I had myself at the beginning of my own trading career.
The reality is that building a trading business is the same as building any other type of business.
Having a good product has virtually nothing to do with how much money you will make or how successful you’ll be.
His app faded away while Uber went on to a 2018 valuation of $72 Billion.
The idea or product alone is not enough. You also need the correct strategy to scale and grow the business.
I’m sure you have seen reverse examples of fast growing companies that have an inferior product.
This principle is perhaps the most important lesson of this entire post. Focus on building your business as well as your performance track record.
Of course your performance is vital but don’t fall into the trap of believing it is all you need to grow your AUM.
Having that false belief can lure you into falling for some of the clever gimmicks found in the world of online Forex trading.
These include so called ‘funding’ platforms that promise to match investors with traders. The concept makes it sound so simple.
The main problem is that they attract investors looking for spectacular returns and traders desperately trying to produce them.
This all leads to an environment where you will struggle to be noticed while aiming for realistic gains.
Building A Business
To successfully build a money management business you need to follow a proven approach.
This involves being correctly regulated, working with quality tools and growing your AUM through marketing.
This requires far more than simply producing a track record of positive performance. In fact, the process can be broken down into five distinct stages of development.
Your first focus should be on developing your own trading account. This will be your early track record. It will also be the central hub for your entire business.
As your business and incomes grow this in turn can be compounded by investing it back into your trading account.
Over a period of several years this is an extremely powerful way to increase your wealth. Keep your primary focus on trading your account.
Once you have an account in place you then need to grow it with as little pressure as possible.
Having a series of regular income streams will remove almost all of that pressure. It will allow you to cover all of your costs while trading your account.
The next step is to start working on the marketing of your trading business. This will result in more people investing with you over time.
Online marketing is the most effective way to do this. It allows you to begin growing your audience with relatively low expenditure.
This can be as simple as launching your own social media pages. Blogs that contain useful content and demonstrate your expertise are also powerful.
Success Takes Time
Approaching things in this way will give you a much better chance of building a sustainable asset management business.
When trying to gauge your progress it can be useful to measure progress in three month and two year blocks.
You should be able to see how you will add value and grow your business over the next three months. When you look back you can measure how this played out.
Noticeable progress in terms of AUM and revenue growth should be measured over a two year period. This is where you should see significant improvement.
It is important to have realistic expectations in terms of how long it will take to build a sustainable business.
It is also important to know when things are not progressing. This could be a sign that you need to adjust your strategy.
If you look back over the last two years and nothing has improved this is a bad sign and requires action.
If you run out of ideas for growing your business over the next three months then this also calls for a re-think.
The early stages of your business are the most vulnerable and creating a robust business model from the start will insulate you.
This means generating as many different income streams as possible and having a strategy to cover all of your costs.
Typically, the most vulnerable period is when you have less than £10 million AUM and your track record is under three years long.
Generating an income and covering your running costs through these years will give you a great chance of long term success.
Common Pitfalls For Start-up Fund Managers
Aside from the early years there are other things that you will need to watch out for.
Another common killer of new managers is when they take on too many unnecessary costs too early in their career.
You might dream of starting your own hedge fund but unless you have enough AUM the costs of that will be too high.
It is probably more efficient to use a managed account or even trade copying structure instead. This can be spun off into a fund as your AUM grows.
Before you take on any additional costs always assess thoroughly whether it is absolutely necessary and affordable.
This can literally be the difference between your new business sinking or flourishing.
Another issue to pay attention to is that of working with the wrong investors. You might think that any investment is good. You’d be wrong.
The worst type of client is the wannabe trader that cannot trade themselves but knows enough to question your every move.
The wrong investor can be distracting and negative. This can disrupt your trading performance and lead to negative periods.
Too much of this can cause other investors to leave. It’s always best to make sure you can work with each investor personally before accepting their money.
The final pitfall that stops new managers ever growing their business is their own attitude in itself.
Believing in your track record is simply not enough. You must view the entire thing as a business and grow every element.
If you are not taking steps every week to grow your business then it is highly likely that you will struggle to sustain it.
Building an asset management business from scratch is extremely competitive and littered with obstacles.
Do not be lured into thinking that you can hook yourself up to an online platform and launch your own hedge fund.
The process for building an asset management business is far more convoluted and requires a lot more hard work than that.
You need to grow your own trading account. This is where you re-invest all of your incomes through the early years.
You then need to build a credible business structure. This includes being regulated and having a professional looking brand.
To survive your first three years you need to generate as many different income streams as possible. This will determine your success or failure.
Finally, you need to work extremely hard to get as many people seeing that brand as possible. Marketing is crucial if you want quality investors.
If you don’t know anything about marketing or business then you will have to learn. A start-up asset management business is no different to any other business.
Some people will apply the concepts in this article and work very hard on their business. Other people will be put off by all the work and never even launch.
The main point of this post is to give you the truth about what it takes to grow a business in this industry.
Don’t be fooled by anyone trying to make it sound easy.
If you have the correct expectations then you can always make the right decision for you. And that is the most important thing.
If you have any questions or comments about this article please write them below. I read every one and try to reply to as many as possible.
I also use your questions as inspiration for new posts in the future.