8 Things to Know Before Getting a Job as a Financial Advisor
“If I knew then what I know now.” After some experience in the financial advisory industry, I learned a lot about how it works from the inside and I love helping out others looking to join the industry. It’s one of the few careers where the pay is high, there are not many barriers to entry, and employment opportunities are expected to grow much faster than average.
According to the U.S. Bureau of Labor Statistics, from 2010 to 2020, the number of financial advisors is expected to grow by 32% (much faster than average). The exact number of jobs is expected to increase from 206,800 to 273,200. The average salary of a financial advisor was $64,750 per year in 2010.
1. Proceed with caution: There are many firms out there looking to take advantage of you.
Be wary of commission-only positions where the firm encourages you to sell insurance and investment products to your friends and family. It can ruin relationships and often times you don’t know enough about those products yet. If the products don’t work out for your friends and family, they may be stuck with the negative effects for years after you leave the company. With the standard turnover rates for these positions, it is likely that you will leave quickly.
I won’t mention the companies because I don’t want the liability, but in my opinion, they are the ones that advertise their jobs the most frequently and don’t require any experience. They can do this because many of these firms have an extremely high turnover rate for these positions (upwards of 80%) so they are consistently hiring to replace those who left.
This does not mean that some will not become successful through this route, but just be aware that the odds are you will not be successful and will be out of the industry within 5 years. The biggest thing contributing to your success at these positions will be your sales ability.
2. If you are not good at sales or cannot learn within a matter of months, you’re gonna have a bad time.
It’s hard to start a career as a financial advisor because no matter how great you are at recommending sound financial decisions and tools, at the end of the day you have to bring in new clients. That means most positions will require that you go out and try to gain clients through networking, calling, emails, meeting in person, referrals, public speaking, seminars, and other forms of marketing.
Most training programs and offices require that you gain a certain number of clients or assets in the first 6 months, or you will be let go. Of utmost importance is the ability to gain clients and sell products and/or your services, so if you don’t have confidence to pursue clients and ask someone to trust you with their money, this job is not for you.
3. There is a big difference between the types of financial advisors.
There are four main types of financial advisors:
Commissioned – These financial advisors are often referred to as Brokers, agents of Broker Dealers, or Registered Representatives. The financial advisor receives a commission for selling an insurance or investment product, such as mutual funds, variable annuities, structured products, and insurance. In these commissioned transactions, the financial advisor is not required to act in a client’s best interest, but just needs to make sure the investment is suitable. This can lead to conflicts of interest where the advisor is selling a financial product that is suitable, but not in the clients best interest or has higher fees and a higher commission than other options.
Fee-only – Fee-only financial advisors only charge fees by a percentage of assets managed, a retainer, or by the hour, and do not make a commission for selling insurance or an investment product. An example of this would be if a client has $100,000 in their account, the advisor might typically receive a management fee of 1% per year, or $1,000. Fee-only advisors are required to act in a client’s best interest (a fiduciary standard is the technical term for it). Most fee-only financial advisors heavily advertise that they are fee-only, so you can easily learn if this is the case by visiting their website.
Fee-based – Fee-based advisors sell both products for a commission and have the ability to charge management/hourly fees. It is a combination of the two above options. This creates some confusion, because at certain times they are required to act in a client’s best interest, and at other times they are not.
Salaried – Another situation that is becoming more common is salaried employees that can receive bonuses based on the products they sell or assets they gather. This is a form of advisors that has popped up more at banks and credit union locations. They often receive bonuses paid in one of the three ways mentioned above as well so your hard work can be rewarded.
Keep in mind, a advisor’s title or designations, such as CFP, CFA, financial advisor, or financial planner does not indicate the type of financial advisor they are. These titles are completely independent of the type of fee structure. Also, fiduciary rules for financial advisors will be changing in 2017, so we have yet to see how the industry adapts to new regulations regarding payment structures.
4. You can go independent and have your own business.Even though you may start under a companies’ brand and with their training, after establishing your clients you may be able to start your own “independent” business. Can you take your clients with you? The industry standard answer is yes, but some companies require you to sign agreements that don’t allow this. If the firm you are currently at or potentially joining has signed on to the broker protocol, you may be allowed you to take your clients with you if you join another firm that has also signed it if you move your clients in a specific way.
Why would you want to do this? At some of the larger companies, your payout (the percentage of commission or fees you keep) can be as low as 25%. As an example, with a 25% payout, if you make $10,000 in commissions or fees, you are only able to keep $2,500. If you go “independent” your payout can be as large as 100%, and you can keep the whole $10,000, but you don’t have as much marketing and overhead covered by the company. You also don’t always need to have the startup money saved to go independent. Many “independents” are provided big upfront bonuses when they move to a new firm with their clients.
5. You can become set for the rest of your life and pass on your wealth to your family, or sell for a big payday.
Gathering clients takes years, but once you have an established book of business, it becomes a real asset that produces income every year. Many advisors are able to take this asset and transition in another family member as an advisor to service these clients after they have retired. Also, you can sell you book of business to an unrelated advisor and transition the business to him or her for a substantial sum of money. If you can keep your clients year after year and have a consistent stream of income, this may become the biggest asset you have!
6. It’s a cut-throat business.
Just because the industry is heavily regulated by both the SEC and FINRA, does not mean that other advisors won’t play dirty. The competition is stiff and the money is lucrative, so some advisors aggressively try to poach each other’s clients, even if they have to stretch the truth and do unethical things to make that happen. This is less so than it used to be, but you still need to watch out!
7. It can be extremely rewarding, and not just financially.
The best part is you get the opportunity to help regular people who will rely on their savings to live a long and healthy life.
It’s not like some other financial careers where you help really rich people get richer. If you can give excellent financial guidance, you can help people make and save hundreds of thousands of dollars over their lifetime and provide them with a comfortable retirement.
8. Where the best place to start is…
In my opinion, forgo the large wirehouses and insurance company commission-only positions and try to get a job at a small branch office or family office that does fee-based or fee-only advising. This often results in more guidance and help from experienced financial advisors and less pressure to sell products no matter what. They hire people to train as advisors and also paraplanners that help create the financial plans for clients. Research small financial advisory practices in your area or branch offices of large firms where it is a small team atmosphere and you are sure to be happier with your career. Best of luck!